- Weekly outflows from bond funds hit $US15 ($19) billion, the highest amount in about a year, says tracker EPFR.
- Rising Treasury yields have spurred flight from bond funds while bolstering equity funds.
- The 10-year Treasury yield spiked beyond 1.6% on Friday.
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A climb in long-dated Treasury yields stoked by US growth expectations has contributed to investors yanking more than $US15 ($19) billion from bond funds this week, the largest outflow in a year, according to figures released Friday.
Borrowing costs are stepping higher as implied by the 10-year Treasury yield which is tied to a range of loan programs. The pickup in borrowing costs has put pressure on equities, particularly highly valued tech stocks, in recent sessions including on Friday. The 10-year yield was pushed up to 1.639%, its highest in more than a year and the Nasdaq Composite dropped 1.5%.
Yields have increased as investors price in a potential rise in inflation as the US economy recovers from the impact of the COVID-19 pandemic that threw it and other economies into recession last year.
Concerns about US bond yields was a factor in chasing more than $US15 ($19) billion from bond funds during the week ended March 10, said EPFR, a subsidiary of Informa that provides data on fund flows and asset allocation. The latest outflow was the largest in nearly a year, it said in a note Friday. Bank of America, meanwhile, tallied bond outflows of $US15 ($19).4 billion.
This week’s bond auctions included the sale of $US38 ($49) billion in 10-year Treasuries. This week also marked the signing by President Joe Biden of a massive fiscal package under which $US1,400 ($1,806) checks will be sent to most Americans.
“While the specter of another wave of US Treasuries hitting the market contributed to the growing angst about global borrowing costs,” wrote Cameron Brandt, director of research at EPFR, “the $US1.9 ($2) trillion worth of stimulus they will be issued to finance added fresh fuel to the global reflation narrative.”
He said that narrative has “lit a fire” under equity flows. Equity funds tracked by EPFR raked in more than $US20 ($26) billion for a fifth straight week. That keeps stock-fund inflows on track for a new quarterly record as year-to-date flows “moved within striking distance of the $US240 ($310) billion mark,” said Brandt.
Brandt also said weekly bond outflows were spurred by the liquidation of funds linked to Greensill Capital, a UK-based supply chain finance company that filed for bankruptcy protection earlier this week.