The
Investment Company Institute (ICI) estimated
weekly net cash outflow from bond mutual funds of $13.5 billion during the week
of June 12. This followed a staggering $10.9
billion outflow the previous week.
So began a steady exodus from bonds and bond funds in June that has
continued until now.
Until recently, bonds were the safe haven du jour among
investors who preferred to park cash in low-yielding debt instruments in the
wake of the 2008-2009 credit crisis.
Investors never got over their fear of equities, even as stocks
outperformed in the years 2009 through 2013 to date. The dramatic leap in Treasury yields over the
last three months changed this attitude, however.
Since June investors have continued running for the exits in
the bond market. Last month’s bankruptcy
of Detroit only added to this impetus and resulted in wholesale dumping of
municipal bond funds. In the last two
weeks investors have increasingly unloaded muni-bond funds, so much so that the
disturbingly high number of new 52-week lows on the NYSE has been comprised
almost entirely of these funds. Witness
Tuesday’s 191 new lows; it marks the first times since June 25 that there were
more new lows than new highs. It’s also
the first time since June 25 that there were anywhere near this many new lows.
So with investors running to the exits for bonds, does this
mean we’ll finally see the long-awaited rush into equities the experts have
been predicting? Well it hasn’t happened
yet as the following chart, courtesy of Dr. Ed Yardeni’s blog
(blog.yardeni.com) shows.
Dr. Yardeni points out that during the two weeks of June 5-12
when bond fund outflows totaled $24.4 billion, equity fund inflows actually had
net outflows of $2.0 billion. Clearly
the “Great Rotation” that Wall Street is hoping for isn’t happening.
First it was the euro, then gold and silver, then the emerging
markets, then bonds. One “safe haven”
after another has been shot down. The
proverbial “last Indian standing” is the U.S. stock market, yet the average
retail investor isn’t exactly making tracks to jump on this bandwagon. If not stocks, where are investors’ funds
going? For now the movement is into cash
as investors remain unconvinced that long-term stability has returned to the financial
market.
