Updated 11:31 AM EDT, Tue, May 07, 2024

U.S.-based bond funds post first outflows in six weeks: ICI

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NEW YORK (Reuters) - Investors in U.S.-based mutual funds pulled $755 million from bond funds in the week ended Sept. 17 on concerns that the Federal Reserve would take a more hawkish stance on raising interest rates, data from the Investment Company Institute showed on Wednesday.

The outflows were the first in six weeks, according to data from ICI, a U.S. mutual fund trade organization.

Stock funds attracted a meager $157 million in inflows, with U.S.-focused funds posting $2 billion in outflows and international-focused funds attracting $2.1 billion in new money.

The withdrawals from bond funds underscored fears that the Fed was leaning toward raising interest rates from rock-bottom levels sooner rather than later, which is expected to hurt bond prices. Bond funds have attracted steady inflows this year on an unexpected drop in yields after record outflows in 2013.

"The bond market has been twitchy because of uncertainty as to the timing of when the Fed is going to raise rates and how quickly those rates will rise," said Michael Temple, portfolio manager at Pioneer Investments in Boston.

The Fed on September 17 maintained that it would keep rates near zero for a "considerable time" but released interest rate projections indicating a quicker pace of rate increases than previously forecast.

While taxable bond funds posted outflows, investors still sought tax-free yields and committed $517 million to municipal bond funds, marking their 10th straight week of inflows.

The small net inflows to stock funds were down from the prior week, but the inflows to international-focused funds remained sizable. Some investors have favored cheaper overseas stocks in the wake of multiple record highs in U.S. shares this year.

Hybrid funds, which can invest in stocks and fixed income securities, attracted $179 million in new cash, the weakest demand in six weeks.

(Reporting by Sam Forgione; Editing by Dan Grebler)

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