Bond investments experience capital flight

By Marc Castro

Jun 29, 2013 12:01 PM EDT

Many investors are divesting their American investment grade bonds as well as their junk counterparts at a frantic rate. This sell off is expected to increase in intensity and volume by next week when the value of the recent losses would become clearer.

The reports from mutual funds as to their quarter end results would be full of grim news for panicky investors, who saw that bond markets have been pummelled as of late because of the preparation of the Federal Reserve in pulling the plug for its asset stimulus program. 

According to Global Co-Head of Fixed Income Capital Markets of Morgan Stanley Leo Civtillo, "The big question now is what will be the knock on effect on investment sentiment, once the quarter-end numbers show losses in underlying portfolios due to the sudden spike in Treasury yields."

He added, "No one has a clear answer to that question at the moment,"

According to Lipper, a compamy of Thomson Reuters, about US$2.15 billion was pulled out of US corporate investment-grade bond funds for June. Junk bond flight is even more pronounced, with a June net outflow of US$11.375 billion.

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