What we know: Bond investors pulled a record $66.6B from funds in five weeks.
What we don't know: Where exactly they put it.
Ned Davis Research has done some outstanding work on fund flows and here's what they found. First, cumulative money flow by category:
You can see how much money exited bond funds and money markets funds, about $83B in total. You can also see how little migrated to equities ($300M). So much for the so-called Great Rotation from bonds to equities.
Yet the money had to go somewhere, and the Ned Davis team believes a large portion flowed into the banks. Here are the actual numbers for the five-week period ended July 2:
So investors seem to have found a home for their money at the banks, which means the banks now have to find a home for their deposits -- and guess where they'll go? Bonds!
Here's the catch: cumulative loan growth is running 2 percent, which means banks have to look outside their lending channels in order to put money to work. Banks don't buy equities, they buy bonds. So the selling which took bonds down could simply reverse and push bonds up. "Round trip" postulates Ned Davis.
Blog readers may also appreciate two bond ETFs favored by fast money types to play quick moves in the bond market. TLT tracks Treasuries with maturities of greater than 20 years (buy this to play falling rates). TBT trades 200 percent the inverse of the Barclays 20+ year bond index (Buy this to play rapidly rising rates). Long TLT or Short TBT would reflect the Ned Davis thesis of banks putting money bank into bonds, driving rates lower.