High-Grade Bond Funds Lose $5 Billion as Loans Gain, BofA Says

Investors pulled a record $5 billion from U.S. high-grade bond funds this week as leveraged-loan funds extended their gains, according to Bank of America Corp.

Assets in pools that purchase notes sold by investment-grade companies were reduced by 0.7 percent, the Charlotte, North Carolina-based bank said in a report yesterday. Loan funds gained $1 billion this week, pushing deposits to about $33 billion for the year, as junk-bond funds erased $3.1 billion, according to the report.

Expectations that the Federal Reserve will take steps to curtail its stimulus measures have spurred the worst losses on high-grade bonds this month since the depths of the financial crisis. Fed Chairman Ben S. Bernanke has indicated the central bank could slow the pace of its $85 billion of monthly bond purchases if economic growth keeps pace with the central bank’s forecasts.

Bonds in the Bank of America Merrill Lynch investment-grade index have lost 2.98 percent in June, the most since the month after the collapse of Lehman Brothers Holdings Inc. in October 2008, when the debt lost 7.38 percent.

Inflows into leveraged-loan funds, which provide a hedge against rising rates as the debt is pegged to a floating-rate benchmark, have exceeded 40 percent for the year, compared with outflows of about 5 percent from junk bonds, according to the Bank of America report.

Leveraged loans and junk bonds are forms of high-yield, high-risk debt that carry ratings of less than Baa3 by Moody’s Investors Service and below BBB- at Standard & Poor’s.