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U.S. Corporate Bond Funds Report First Cash Outflow of the Year

Investors yanked money from U.S. investment-grade bond funds for the first week this year as concern mounts that a four-year rally is losing steam.

The funds reported $860 million of withdrawals in the period after 62 consecutive weeks of deposits, the first outflow since October 2011, according to Bank of America Corp. strategists in a report yesterday. Investors have funneled $165 billion into the funds this year, the report said.

Investors are demonstrating waning enthusiasm for debt that’s had annualized return of 11.7 percent since 2008 and that’s now at about the greatest risk of losing value if interest rates rise in 19 years. Dollar-denominated investment-grade bonds are losing value for a second consecutive month after yields on the notes dropped to an unprecedented 2.73 percent on Nov. 8, Bank of America Merrill Lynch index data show.

“We expect USD investment-grade credit to struggle to break even in 2013 on a total-return basis,” Richard Salditt, a Deutsche Bank AG credit strategist in New York, wrote in a Dec. 14 report.

The notes have declined 0.45 percent this month after losing 0.08 percent in November, Bank of America Merrill Lynch index data show. Average modified duration, a measure of the securities’ price sensitivity to yield changes, climbed to 6.87 years on Oct. 29, the highest since 1993 and up from a low of 5.39 years in October 2008, according to the data.

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