Anyone who shorted bond ETFs is feeling pretty smart right about now. After last week’s awkward fed comments, and the taper tantrum that followed, they’re also seeing Fed chairman Ben Bernanke as their best friend.
Investment research firm TrimTabs reported Wednesday that U.S.-listed bond mutual funds and exchange-traded funds have lost an all-time record $61.7 billion in June through Monday.
This outflow far exceeds the previous record monthly outflow of $41.8 billion at the height of the financial crisis in October 2008.
“The unprecedented liquidation of bonds this month is a dramatic departure from recent trends,” David Santschi, chief executive officer of TrimTabs, said in a statement. “Before June, bond funds had posted inflows for 21 consecutive months.”
TrimTabs attributed the selling to a combination of steadily rising yields and hints from global central bankers that monetary stimulus may be scaled back in the future.
“Until this month, investors were piling into all sorts of exotic credit instruments with little regard for value, confident that endless central bank liquidity would inflate prices,” Santschi added. “The massive selling at the mere suggestion that this liquidity might diminish shows the degree to which central bank intervention is driving the markets.”
In a research note, TrimTabs explained that bond yields are likely to stabilize or even decline over the near term. Fund investors tend to be wrong, particularly when their behavior becomes extreme.
“The ferocity of the recent selling does raise longer-term concerns,” Santschi concluded. “How many of the investors who pumped a record $1.21 trillion into bond funds from 2009 through 2012 have experienced a rising interest rate environment? And how will they react when they get their quarterly statements in a couple of weeks and see that their ‘safe’ bond funds are delivering losses?”
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