Investors race back to U.S. bond funds at fastest clip in five months - ICI

By Trevor Hunnicutt

NEW YORK (Reuters) - Investors are unwinding the big bond selloff since the U.S. election, showering U.S.-based fixed income funds with the most new cash in five months during the latest week, Investment Company Institute data showed on Wednesday.

U.S.-based bond funds harvested $9.6 billion in new cash during the week ended Jan. 11, the most since early August, according to the trade group.

The November election that gave Republicans control of the White House and Congress also ratcheted bond prices down. The tax cuts and other stimulus measures touted by President-elect Donald Trump stoked fears of inflation, eroding the value of bonds.

Yet government bond prices have risen somewhat in recent weeks though specifics on fiscal policy remain foggy before Trump takes office on Friday. The U.S. 10-year yield has fallen to 2.38 percent from 2.60 percent on Dec. 16, but those rates are still higher than 1.78 percent on Nov. 4. Bond prices rise as yields fall.

"The relatively safety provided by both taxable and municipal bond funds is appealing to investors amid market uncertainty heading into the presidential transition," said Todd Rosenbluth, director of ETF and mutual fund research at CFRA.

Municipal bond funds, which have been punished in recent weeks and are particularly sensitive to Treasury rates, netted cash for the first time in 11 weeks. Those funds took in $1.9 billion during the week.

Taxable bond funds added $7.8 billion, the most in 14 weeks.

"The return to net inflows of municipal bond funds is highly encouraging as the investment category is primarily used by retail investors," said Rosenbluth.

The $13.9 billion taken in by bond funds over the last three weeks reverses the $13.3 billion that was pulled from the funds in November, ICI data shows.

The move into bonds did not come at the expense of stocks, a big winner since the election.

Funds focussed specifically on international equities took in $4.4 billion, the most since February 2016. Domestic stock funds took in $3 billion, bringing the overall total for U.S.-based stock funds to $7.4 billion, ICI said.

(Reporting by Trevor Hunnicutt; editing by Diane Craft)