Investors Pull Record $12.5 Billion From Bonds, Citigroup Says

Investors withdrew a record $12.5 billion from bond funds in the week to June 5, Citigroup Inc. said, citing EPFR Global data.

The outflows were the first in 24 weeks, Markus Rosgen, Citigroup’s Hong Kong-based chief Asian strategist, wrote in a note dated today. Investors also pulled $6.2 billion from stock funds, with $5 billion of that coming from emerging markets and $1.2 billion from developed nations, he wrote.

Global bond markets posted their biggest monthly losses in nine years in May amid speculation a strengthening U.S. economy will allow the Federal Reserve to reduce its monetary stimulus. Bill Gross’s Pimco Total Return Fund, the world’s largest mutual fund, had redemptions of $1.32 billion in May, the first net withdrawals since 2011, according to Morningstar Inc.

There’s concern about possible plans by the Fed to taper stimulus, Yue Hin Pong, an analyst at Citigroup, wrote in an e-mail today. Bond outflows are “probably not” going to continue as “people will soon realize this story is overdone,” the analyst said.

U.S. bond funds suffered their second-worst weekly withdrawals in more than two decades. Investors pulled $9.1 billion from U.S. fixed-income mutual funds and exchange-traded funds in the week through June 5, Denver-based Lipper said in an e-mailed statement. That’s the second-biggest redemptions for a week since the company started tracking the data in 1992.

Stock Flows

Investors withdrew $1.8 billion from Asian equities in the week to June 5, the most since August 2011, according to Rosgen. China saw outflows of $834 million, while Asian regional funds which invest in multiple countries lost $499 million and investors took out $417 million from Hong Kong, he said.

The MSCI All-Country World Index has fallen 1.2 percent this week, heading for a third straight decline. Japanese stocks led the retreat with a 7.8 percent drop. The Hang Seng China Enterprises Index has slumped 3.3 percent.

The Fed is purchasing $85 billion a month in Treasuries and mortgage debt as part of its third round of quantitative easing, which began after it dropped its benchmark rate to almost zero to lift the economy out of recession.

The more than $40 trillion of bonds in the Bank of America Merrill Lynch Global Broad Market Index fell 1.5 percent on average in May.

BlackRock Inc., the world’s biggest money manager, said yesterday it reduced emerging-market positions, while investors are the most bearish ever on the largest exchange traded fund for emerging-market bonds.

Short interest, a measure of shares borrowed and sold on speculation they will fall, on the iShares JPMorgan USD Emerging Markets Bond Fund surged to 8.5 million on June 5, according to data compiled by London-based Markit Group Ltd. That’s up from 1.9 million on Dec. 31 and is equivalent to 18 percent of the outstanding shares, the data showed.

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