New York (HedgeCo.Net) Investment Research reports that fund investors have been remarkably unfazed by surging yields on Treasuries and investment-grade corporate bonds. Bond mutual funds and exchange-traded funds have managed to take in $5.3 billion in June through Friday, June 5 even though these funds are down 0.9% month-to-date.
“The lack of reaction to the backup in bond yields since mid-April is startling,” said David Santschi, chief executive officer of TrimTabs. “We would normally expect investors to be selling hard by now.”
In a research note, TrimTabs explained that the yield on the 10-year Treasury note climbed from 1.85% on April 17 to 2.40% on June 5, an increase of 55 basis points. Nevertheless, bond mutual funds and exchange-traded funds have taken in $5.3 billion ($1.1 billion daily) in June after losing a scant $850 million ($40 million daily) in May.
“The contrast between what’s happening now and what happened amid the ‘taper tantrum’ in mid-2013 has been dramatic,” noted Santschi. “The yield on the 10-year note rose 80 basis points in May 2013 and June 2013, which helped trigger the record outflow of $68.6 billion from bond funds in June 2013.”
TrimTabs explained that the lack of selling in the wake of the recent poor performance of bond fund is a negative sign from a contrarian perspective. “Such indifference to losses points to higher bond yields ahead,” said Santschi.