Bond funds are attracting cash like stocks during the dot-com boom.
That’s the headline this morning on Bloomberg, who says: “The amount of money flowing into bond funds is poised to exceed the cash that went into stock funds during the Internet bubble, stoking concern fixed-income markets are headed for a fall. Investors poured $480.2 billion into mutual funds that focus on debt in the two years ending June, compared with the $496.9 billion received by equity funds from 1999 to 2000, according to data compiled by Bloomberg and the Washington-based Investment Company Institute.” $480Bn?!? Whuck!?!
First of all, who the hell has $480Bn to do anything with in this economy? That’s where I stop reading and start pondering. Of course, not all this cash is from America but holy cow – that is A LOT of money in these troubled times. Imagine if some of that money starts going into equities. Well, don’t imagine that if you are bearish because you won’t be able to sleep at night! The cash inflows have pushed investment-grade US Corporate Debt down to a record 3.79% while Treasury Yields fell to an all-time low of 0.5%.
The money flowing into bonds is “probably not repeatable on a consistent basis,” said Joel Levington, managing director of corporate credit in New York at Brookfield Investment Management Inc., which oversees $24 billion. “Eventually it won’t be sustainable. Whether that means five years from now or five weeks is a little difficult to tell,” he said. Let’s be very clear about that last part – in order for any bubble to sustain itself it must continue to be fueled. $480Bn is A LOT of money being put into instruments that provide little return. I just did some charts and data on historical inflation in this weekend’s “Defending Your Portfolio With Dividends” post for Members as we already see the writing on the walls with the Bond market and need to move into things that will actually make money (and protect our basis – which bonds do not at these levels).
Investors took $9.1 billion OUT of equity funds in the week to Aug. 19, the most since July, according to Oleg Melentyev, a credit strategist at Bank of America Merrill Lynch Global Research in New York. Stock funds have had $215.4 billion of outflows the two years ended June, ICI data show. Citigoup’s Tobias Levkovich says The “extremities of the money flows” into fixed income from equities is troubling. “In 2000 or late 1999, we saw massive amounts of…
