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Investors Add One-Week Record $18.9 Billion to U.S. Bond Funds

  • Economic confidence, portfolio rebalancing help spark inflows
  • Net deposits are highest in ICI data going back to early 2013

Investec's Stopford Doesn't See Bear Market in Bonds Yet

Investors poured $18.9 billion into U.S.-based fixed-income mutual funds and exchange-traded funds in the week through Jan. 10, the most in at least five years, the Investment Company Institute reported Wednesday.

Inflows surged because of factors including portfolio rebalancing and growing confidence in corporations’ ability to repay debt, according to Shelly Antoniewicz, the ICI’s senior director of industry and financial analysis.

“Corporate spreads are pretty low right now,” she said in an interview. “There’s less risk of the economy falling into a recession, so all of that’s good for corporations being able to pay their obligations.”

The flows came despite rising interest rates, which typically depress bond prices. Ten-year Treasury yields passed 2.5 percent on Jan. 9, a threshold that Bill Gross of Janus Henderson Group last week said signaled a bond bear market.

Investment-grade corporate bond funds took in about $6.1 billion of the week’s $14.1 billion net inflows to taxable fixed-income mutual funds, according to the ICI. Rates on corporate debt, sometimes called spread sectors because of higher yields than Treasuries to compensate for greater risk, have been falling because of better outlooks for company profits and economic growth.

Corporate Strength

“The improved flows into spread sectors was very important because that just speaks to the strength of U.S. corporations,” said John Lynch, chief investment strategist for LPL Financial. “There’s clearly confidence in not only the U.S.’s ability to service debt but U.S. corporations’ as well.”

The weekly flows data for mutual funds and ETFs combined goes back to January 2013. The prior record for bond fund inflows came the week of June 24, 2015, when investors added a net $18.7 billion.

The ICI’s Antoniewicz cautioned against drawing conclusions based on one week of flows.

The first quarter of the year often is skewed by people investing bonuses or contributing to retirement accounts in advance of tax deadlines, she said. In addition, many investors are harvesting gains now as stocks keep climbing, and more money is being shifted to bonds as the aging baby-boom generation leaves the workforce to depend on investment income.

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