U.S.-based Treasury-heavy funds post $2.2 billion outflows in week: Lipper

By Sam Forgione

NEW YORK (Reuters) – Investors in U.S.-based funds pulled $2.2 billion out of funds that mainly hold U.S. Treasuries in the week ended May 27, data from Thomson Reuters’ Lipper service showed on Thursday.

The outflows were the first in three weeks and the biggest since early March. Taxable bond funds overall posted $2.1 billion in outflows to mark their first withdrawals in three weeks.

Stock funds attracted $221 million in new cash after posting $1.7 billion in withdrawals the prior week. Emerging market stock funds posted their 10th straight week of inflows, at $270 million.

The Barclays U.S. Treasury Index rose 0.5 percent over the latest weekly period.

Treasury yields rose after Federal Reserve Chair Janet Yellen on May 22 said she expected U.S. interest rates to rise this year. But longer-dated yields tumbled earlier this week on month-end buying and after a rally in the U.S. dollar made U.S. government debt more attractive to investors.

Yields move inversely to prices.

Jeff Tjornehoj, head of Americas research at Lipper, said $1.6 billion of Treasury outflows came from the iShares Short Treasury Bond ETF, which specializes in U.S. Treasuries that mature in less than one year. Shorter-dated Treasuries are sensitive to expectations regarding the timing of the Fed’s policy moves.

Investors are probably concerned a rate hike is coming later this year, Tjornehoj said.

“Investors may have grown frustrated with the lack of returns in the short end of the yield curve, which started the year on fire,” he said. “A $10,000 investment in SHV at the beginning of the year is only worth $10,004 today. Interest rates are low, but you can do better than that.”

He added that the long-maturity product, iShares 20+ Year Treasury Bond ETF, saw cash withdrawals of $257 million.

Overall, U.S.-based domestic-focused stock funds posted $4.2 billion of outflows, their second straight week of net withdrawals, while U.S.-based non-domestic focused stock funds attracted $4.5 billion of inflows, their 16th straight week of inflows.

(Reporting by Sam Forgione)

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