GRAPHIC-Investors dump global bond and equity funds on recession risks

BY Reuters | ECONOMIC | 09/30/22 06:22 AM EDT

Sept 30 (Reuters) - Global bond and equity funds witnessed massive outflows in the week ended Sept. 28 as worries about a recession grew, with the U.S. Federal Reserve determined to keep interest rates higher to tame inflation pressure.

A selloff in British gilts following finance minister Kwasi Kwarteng's announcement of historic tax cuts also shook confidence in bond markets globally.

Investors offloaded a net $22.07 billion worth of global bond funds, in their biggest such weekly net sales since June. 22, data from Refinitiv Lipper showed.

Bond funds in Europe and the United States recorded outflows of $12.37 billion and $9.08 billion respectively, although Asian funds obtained a marginal $80 million in net buying.

High-yield bond funds lost $5.34 billion, and short- and medium-term funds $8.27 billion, in their biggest weekly outflow since June 22, but government bond funds drew a net $3.05 billion in a fifth straight week of net buying.

But the drop in bond prices has attracted some investment managers as U.S. bond giant PIMCO increased its allocations to some high-quality bonds in recent weeks.

Global equity funds also witnessed liquidations worth $10.84 billion, much higher than the previous week's net selling of $1.65 billion.

Industrials and healthcare saw disposals of $764 million and $571 million, respectively. Funds in sectors such as tech, financials, materials, real estate, consumer staples and consumer discretionary also faced outflows.

Data for commodities funds showed investors jettisoned precious metal funds for a 14th week, this time worth a sum of $1.39 billion, while exiting $42 million in energy funds.

An analysis of 24,589 emerging market funds showed investors drew $4.11 billion out of bond funds, and $2.35 billion out of equity funds in an 11th straight week of net selling.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Clarence Fernandez)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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