Bond investors skedaddle as funds see worst monthly outflows ever

Investors are wasting no time trying to unwind their bond positions in the face of rising interest rates. Bond mutual funds and exchange-traded funds saw $62 billion in outflows through the first three weeks of June, according to research firm TrimTabs Investment Research. That's $20 billion more than the previous record for monthly bond fund withdrawals in October 2008 — and there's still one week left in the month. The withdrawals have wiped out over half of the $115 billion deposited into bond funds through the first five months of the year. The rush to the exits is the result of long-term rates jumping nearly 100 basis points since the start of May, which has triggered widespread losses throughout the debt market. Remarkably, over the past month, not a single bond mutual fund category at Morningstar Inc. has posted a positive return. Bank loans have fared the best with a 0.94% loss. Emerging-markets debt and high yield have been among the worst performers, with losses of 8.8% and 4.2%, respectively. Some experts predict that once investors get a look at the red ink on their monthly statements, bond funds will see an even greater sell-off. “What is scary here is the forces of mutual fund investors' seeing their net asset values drop, and they are going to start dropping significantly,” Dan Toboja, senior vice president of fixed income at Ziegler Capital Markets Group, told InvestmentNews.