US bond funds draw most cash in nearly 6 months despite rising interest, inflation risk

US fund investors pushed the most cash in nearly 6 months into bonds in the latest week and inched back into stocks for the first time in 5 weeks, Investment Company Institute (ICI) data showed.

The data was collected over the seven-day period through July 18.

During that week, Federal Reserve Chairman Jerome Powell expressed an optimistic view on the US economy and early earnings reports mostly bolstered the outlook for the most recent quarter.

Bond mutual funds and exchange-traded funds (ETFs) based in the US collected nearly $8.7 billion during the week and stock funds pulled in another $1.5 billion, according to the ICI.

The strong sales for debt funds were helped by nearly $1.8 billion pumped into municipal bond funds that offer tax-free income, the most cash for those products since late January, ICI’s records show.

Seen as a lower-risk source of income than equities, bond funds have drawn strong demand despite the risk of rising interest rates and inflation, not to mention the year-to-date negative performance of many such debt funds.

In particular, bond ETFs have also drawn interest from institutions that traditionally favored trading individual bonds.

Nearly 87 percent of the cash that moved into stock funds went into products primarily invested within the US, according to the ICI.

After strong demand for stocks outside the country in 2017 and earlier this year, investors started pulling cash in recent weeks as anxiety spiked over US interest rate hikes as well as the consequences of a growing trade war for the dollar and equity markets around the world.