Record Selling of Bond Funds: $79.8 Billion Pulled from Bond Mutual Funds and Exchange-Traded Funds.
The biggest liquidity story is unfolding in the bond market, not the stock market. Investors are pulling record sums out of bond funds. Read this investor insight by TrimTabs Asset Management to learn more about the central bank’s influence on the markets as well as supply and demand activity with the stock market.
In June through Thursday, June 27, bond mutual funds and exchange-traded funds lost $79.8 billion— $70.8 billion from bond Mutual Funds (MFs) and $9.0 billion from bond ETFs. Last month’s outflow from bond funds was nearly double the previous record outflow of $41.8 billion in October 2008.
From a contrarian perspective, all this selling suggests bond yields are likely to stabilize or decline over the near term. Fund investors tend to be poor market timers, particularly when their behavior is extreme. But the swiftness of the stampede out of bonds raises questions about how investors will react when they get their quarterly statements in the coming weeks and notice that their “safe” bond funds are delivering losses instead of gains. Central bankers certainly seem concerned. They were out in force last week to reassure investors that they will not slow the flow of monetary goodies anytime soon. Their increasingly frequent communications campaigns and the sharp market movements in response to Federal Reserve Chairman Ben Bernanke’s press conference show the degree to which markets are being driven far more by central bank intervention than by corporate or economic fundamentals.
Turning our attention to the stock market, our demand-side indicators turned less favorable in the past week. The TrimTabs Demand Index fell 2.4 points to close at 74.2 on June 27 (readings above 50 are bullish). Since the index fell below 75, the TrimTabs Demand Index has turned fully bullish (100% long) from leveraged bullish (200% long) on U.S. equities. In addition, ETF flows suggest the stock market has more work to do on the downside in the near term. Investors in leveraged ETFs have turned aggressively bullish, which is bearish from a contrarian perspective. Leveraged long ETFs issued 7.2% of assets in the past week, while leveraged short ETFs redeemed 6.8% of assets. Another cautionary sign is that U.S. equity ETF flows remained positive amid the recent volatility. These ETFs issued $7.8 billion (0.5% of assets) in the past month even though the average fund dropped 3.2%.
No comments:
Post a Comment