(Bloomberg) — Investors who piled into inflation-linked bond funds for nine straight months are reversing course in the latest sign markets aren’t buying the Federal Reserve’s outlook for price gains.
Traders yanked almost a half a billion dollars last month from U.S. exchange-traded funds holding government securities that protect against inflation. The withdrawals came as a bond-market gauge of expected price increases fell to the lowest since May 2009. The central bank, which seeks to achieve 2 percent inflation, is poised to raise interest rates even as debt markets harbor little optimism about price acceleration.
“The market is saying one thing, which is a different view than what the Fed is saying,” said Gary Pollack, who manages $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. “We’ll see who blinks first.”
Investors pulled $478 million from 18 inflation-linked bond ETFs in August, the most since September 2014, according to data compiled by Bloomberg.
They had funneled $2.1 billion into the funds between January and July amid greater confidence that central banks would be able to spur price gains. The ETFs invest in bonds such as Treasury Inflation-Protected Securities, whose face value rises or falls according to a gauge of price increases.