In the first seven months of 1993, more than $73 billion of new money flowed into bond mutual funds as investors took advantage of the bond rally triggered in part by President Clinton's deficit-reduction plan. This huge inflow has some market watchers worried that a large number of unsophisticated investors may be exposed to big losses if interest rates bounce up again.
Not to worry, says economist David Hale of Kemper Securities Inc. He points out that the enormous shift into bond funds has created something that never existed before: a broad-based constituency for deficit reduction. "That could help the Administration offset some of the unpopularity caused by its tax program," notes Hale. What's more, the legions of bond-fund investors now have a vested interest in resisting any attempt to boost the deficit again, making it more likely that interest rates will stay down in the future.