Bond funds attract $4.5bn

NEW YORK: Investors in funds worldwide poured a net $4.5 billion into bond funds in the week immediately following the US Federal Reserve's surprise decision to keep its bond-buying program unchanged, data from a Bank of America Merrill Lynch Global Research report showed Friday.
The flows into bond funds in the week to Sept. 25 reversed eight straight weeks of net outflows from the funds and marked the strongest new demand for the funds in five months.
The inflows came after the Fed announced on Sept. 18 that it would maintain the pace of its $85 billion in monthly bond purchases.
Funds that hold high-yield junk bonds pulled in $4 billion of the total inflows into bond funds, the largest in nine weeks. Emerging market bond funds attracted $600 million, marking their first inflows in 18 weeks, according to the report, which also cited data from fund-tracking firm EPFR Global.
The yield on the benchmark 10-year US Treasury note plunged 17 basis points to 2.69 percent last Wednesday following the Fed decision. The yield on the safe-haven bond fell an additional 6 basis points to 2.63 percent over the reporting period. Bond yields move inversely to their prices.
While riskier junk bond funds accounted for most of the inflows into bond funds, safer investment-grade bond funds also attracted $1 billion in new cash, their biggest inflows in 17 weeks.
Funds that hold municipal bonds attracted inflows of just $59 million, but the inflows marked the first new demand for the funds in 18 weeks. Demand for the funds has been hit by Detroit's bankruptcy filing on July 18.
Investors also parked $16 billion in low-risk money market funds, which invest in short-term securities. The funds have seen $68 billion in inflows over the past two months, according to the report.
Stock funds, meanwhile, had outflows of $1.5 billion, reversing the previous week's record $26 billion inflow. US stock funds had outflows of $7.4 billion after pulling $16.9 billion the prior week. The S&P 500 .SPX stock index fell 1.9 percent over the latest weekly period.
Funds that hold international stocks, however, attracted new demand. European stock funds pulled in $2.3 billion, marking their 13th straight week of inflows, or their longest inflow streak since 2006 according to Bank of America Merrill Lynch.
Funds that hold emerging market stocks pulled in $1.9 billion over the weekly period as the MSCI emerging market equities index rose 0.7 percent.
Japanese stock funds also pulled in $800 million, marking their third straight week of inflows as Japan's Nikkei average rose 0.8 percent for the week.