While there have been some withdrawals from JPMorgan’s core bond strategies, “most of the outflows have come from clients aiming to diversify their fixed-income portfolios,” with many of the same clients depositing money into flexible debt funds, Gregory Roth, a spokesman for the New York-based firm, said in an e-mailed statement.
The withdrawal last month reflected a client moving assets from the Core Bond fund into a different vehicle managed by the firm and not a rotation of money out of investment-grade debt, Roth said.
Buyers pulled $2.2 billion from broader bond strategies in the U.S. during the week ended Oct. 30, the biggest outflow in more than three years, data compiled by Royal Bank of Scotland Group Plc show. Funds focused on high-yield bonds reported $752.7 million of deposits in the period.
Speculative-grade debt, rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s, is less sensitive to rising interest rates because of the bigger premium it pays over benchmarks.
Pimco’s Total Return Fund, started in 1987 and managed by Bill Gross, has shrunk by an estimated $37.5 billion since the start of this year, ending October with about $248 billion in assets, according to data provided by Pimco and compiled by Bloomberg. It ceded its title as the world’s largest mutual fund to Vanguard Total Stock Market Index Fund, which ended October with $251 billion.
Medium-term notes are poised to under-perform shorter-term ones for the first year since 2008, when the Fed embarked on an unprecedented quantitative easing program to jump start the world’s biggest economy from the depths of the financial crisis.
Corporate bonds maturing in five to seven years have declined 0.01% this year compared with a 1.6% gain for notes maturing in one to three years, Bank of America Merrill Lynch index data show.
The Bank of America Merrill Lynch U.S. Broad Market Index has lost 2.01% this year after posting a 2.45% decline in the three months ended June 30, its biggest quarterly loss since the start of 1994. The index gained 4.53% in 2012.
Fed Chairman Ben S. Bernanke rattled fixed-income markets in May by telling Congress that the central bank may reduce the pace of its $85 billion of monthly purchases of Treasuries and mortgage bonds if the economy showed sustained improvement.
Yields on 10-year Treasuries rose as high as 3.01% on Sept. 6, up from 1.76% at the end of December, as speculation mounted that the Fed would change the pace of its bond buying at its September meeting.
While policy makers surprised forecasters by maintaining the level of stimulus, yields reached a seven-week high of 2.75% at the end of last week as reports showed the economy expanded in the third quarter beyond projections and added more jobs in October than forecast.