(Reuters) – US bond funds saw huge outflows in the week ended September 21 as caution crept in ahead of the Federal Reserve’s monetary policy decision about the pace and length of US interest rate hikes.
U.S. bond funds saw outflows of $7.33 billion in their biggest weekly net sales since Aug. 24, according to data from Refinitiv Lipper.
CHART: Flows of funds: US equities, bonds and money market funds https://fingfx.thomsonreuters.com/gfx/mkt/gdvzyxzklpw/Fund%20flows%20US%20equities%20bonds%20and%20money%20market%20funds.jpg
The Federal Reserve hiked interest rates by 75 basis points on Wednesday, the third such hike in a row, and officials are forecasting rates for this year at 4.4%, which is 100 basis points higher than what the Fed forecast three months ago.
The benchmark 10-year Treasury yield hit a 12-year high of 3.829% on Friday and is expected to rise for an eighth week as investors brace for more aggressive US interest rate hikes ahead.
US short/intermediate investment grade, high yield and general domestic taxable fixed income funds all faced outflows of $3.59 billion, $1.81 billion and $692 million, respectively .
Treasury funds, however, received $3.02 billion in inflows for the fourth straight week.
CHART: Fund Flows: US Bond Funds https://fingfx.thomsonreuters.com/gfx/mkt/byvrjgzxove/Fund%20flows%20US%20bond%20funds.jpg
Meanwhile, US equity funds secured $3.99 billion in net purchases after facing four straight weeks of outflows.
Value funds, which invest in companies with lower valuations and stable growth, attracted $731 million in inflows, while growth funds attracted $321 million in their first weekly inflow since Aug. 10.
“Value funds are generally less interest rate sensitive than growth funds, which has resulted in lower daily volatility and better performance as rates rose throughout 2022,” said Michael Crook, chief investment officer at Mill Creek Capital Advisors.
“We expect value stocks to continue to outperform growth stocks until the Fed’s rate-hike cycle is complete, which could be well into 2023 or even 2024.”
CHART: Fund Flows: US Growth and Value Funds https://fingfx.thomsonreuters.com/gfx/mkt/zgpomoqaopd/Fund%20flows%20US%20growth%20and%20value%20funds.jpg
Among sector funds, technology and utilities returned $401 million and $272 million, respectively, but financials saw outflows of $1.81 billion.
Meanwhile, investors bought safer money market funds for $27.6 billion, their largest weekly net purchase since May 25.
CHART: Flows of funds: US equity sector funds https://fingfx.thomsonreuters.com/gfx/mkt/jnvwemqjnvw/Fund%20flows%20US%20equity%20sector%20funds.jpg
(Report by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru)