Bond funds suffer record outflows amid tapering fears

coins in squeeze 410Investors pulled $14.45 billion (€10.94 billion) out of bond funds during the week ending June 12, data from EPFR shows, as fears that the US monetary policy will tighten in the second half of the

year made markets nervous.

This was a new outflow record for the second week running, prompting investors to head for the exits. Over the same time, investors withdrew $8.5 billion from equity funds.

Ben Bernanke, the chairman of the US Federal Reserve, says that the asset purchasing programme could slow down later this year.

“The committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year; and if thesubsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce thepace of purchases in measured steps through the first half of next year, ending purchases around mid-year,” he says in a statement.

“In this scenario, when asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7%, with solid economic growth supporting further job gains — a substantial improvement from the 8.1% unemployment rate that prevailed when the committee announced this programme.”

Joe Dyer, a senior fund manager at Rowan Dartington, a UK-based wealth manager, warns that the eventual end of quantitative easing will pose significant challenges for global markets “as they wean themselves from the sugar high”.

This would be particularly problematic if the exit was sudden.

“It is still unknown whether Bernanke will serve another term in January, but clearly the last thing that he will want to be remembered for is killing off the recovery by withdrawing the stimulus too soon,” Dyer remarks. “Quality Exit comes to mind.”

Thomas Graff, a fixed income portfolio manager at Brown Advisory, says that there is no doubt that Bernanke “is walking a very thin line”.

He says markets have been choppy lately because there had been no clear definition of under what circumstances the Federal Reserve would start reducing the pace of quantitative easing purchases.

ABN Amro Private Banking says it has significantly increased the cash component of its assets under management in anticipation of the tapering of asset purchasing programmes by central banks.

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