Investors fled govt debt funds with biggest outflow in 10 weeks: BofA

[NEW YORK] Amid a surge in global bond yields, investors worldwide pulled $1.9 billion out of funds that mainly hold U.S. Treasuries in the week ended May 13, marking the biggest outflows in 10 weeks, a Bank of America Merrill Lynch Global Research report showed .

Bond funds overall posted $16 million in outflows, marking their first outflows in 19 weeks, according to the report, which also cited data from fund tracker EPFR Global. Mortgage-backed securities funds posted $48 million in outflows, their first in 30 weeks.

Stock funds attracted $1.9 billion in a rebound from the prior week's massive $17.2 billion in investor withdrawals, which were the biggest of the year. The new cash, which marked the first overall inflows for stock funds in five weeks, flowed entirely into stock exchange-traded funds.

Funds that specialize in U.S. shares grabbed $600 million to end an eight-week streak of outflows, while Japanese stock funds attracted their biggest inflows since Oct. 2014 at $4.3 billion.

The outflows from funds that mainly hold safe-haven U.S. Treasuries came on the heels of a more than two-week sell-off in government-bond prices in the United States and Europe. Benchmark 10-year U.S. Treasury yields, which move inversely to prices, extended their rise to a six-month high of 2.37 percent on May 12.

Some attribute the spike in Treasury yields to a similar spike in German 10-year Bund yields, which hit their highest in nearly six months at 0.796 percent on May 7.

"There's a camp that felt that Treasuries were overbought," said Michael Temple, portfolio manager at Pioneer Investments in Boston. He said the sell-off was partly in response to a similar sell-off in Bund prices, which was primarily driven by the belief that deflation in Europe was bottoming out.

Riskier high-yield bond funds posted their third straight week of withdrawals, at $200 million. Among equities, Japanese stock funds attracted $4.3 billion in new cash to mark their biggest inflows since October 2014 and their 12th straight week of new money, while European stock funds posted their second straight week of outflows, at $1.2 billion.

REUTERS