Bond funds hit by biggest outflows on record as QE fears strike

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Bond funds worldwide have been struck by their biggest weekly outflows on record after fears mounted that the Federal Reserve could start to slow quantitative easing, figures from EPFR Global show.

Collective outflows of $12.53bn (£8bn) were seen during the week ending 5 June 2013 across the bond funds tracked by the fund flow data provider. It adds that two-thirds of outflows came from US funds.

High-yield bond funds across the globe suffered more than $6n in redemptions last week, while over $1bn was withdrawn from global and emerging markets bond funds.

“EPFR Global-tracked bond funds started June by posting their biggest weekly outflows on record as fears the US Federal Reserve will start reining in its current quantitative easing programme – QE3 – put pressure on bond prices and chased investors out of riskier asset classes,” the firm says.

The outflows follow the suggestion from Fed chairman Bernanke that the central bank may start to taper its $85bn-a-month bond-buying scheme “in the next few meetings” if the country’s labour market continues to strengthen.

This prompted a sell-off in stockmarkets across the globe, as they have been supported by the Fed’s QE programme, and led to withdrawals from equity funds also.

EPFR says redemptions from equity funds reached $6.21bn in the week ending 5 June, which is the highest level of outflows seen for 28 weeks. Asia ex-Japan equity funds and China stock funds saw outflows strengthen after fears spread that growth in the world’s second largest economy will continue to slow.

The data also shows floating rate bond, dividend equity, Japan equity and frontier equity funds were some of the “few” fund groups able to post inflows for the last week – although flows into Japanese equities slipped to an 18-month low.