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Bond funds see flows slide as rates rise

Institutional flows into fixed-income mutual funds slid in each of the first three quarters of 2018 as the yield on the 10-year Treasury to 3.06% on Sept. 30 from 2.4% at the end of 2017. Bond funds assumed about $16 billion in new money in the third quarter, down from about $29 billion in the second quarter and $46 billion in the first quarter. Since the end of September, the 10-year yield rose as high as 3.24% and sat around 3.15% as of Wednesday morning.

Additionally, bond funds have recently seen their fund flows move counter to changes in the equity markets. Bond fund investors have typically allocated more money to the asset class as equity markets heat up and reversed course as equity valuations decline. Given October's market volatility – the Russell 1000 index is down 4.5% since the end of the third quarter – equity funds could see an influx of new money with investors seeing buying opportunities.