The May issue of Crane Data's Bond Fund Intelligence, which was sent out to subscribers Monday morning, features the lead story, "Tale of Two Categories: Ultra Short Hot, High-Yield Not," which reviews the recent shift in flows into shorter-term funds, and the profile, "ICI 2018 Fact Book Reviews Bond Fund Trends, Flows," which reviews the latest on bond funds from the annual update from the mutual fund industry's trade association. Also, we recap the latest Bond Fund News, including the continued move higher in yields and drop in returns. BFI also includes our Crane BFI Indexes, which show declines in April in most sectors except ultra-short and high-yield funds. We excerpt from the latest BFI below. (Contact us if you'd like to see a copy of our latest Bond Fund Intelligence and BFI XLS, and watch for our next Bond Fund Portfolio Holdings data set next Monday.

Our lead "Tale of Two Categories" BFI story says, "While flows into bond funds overall remain robust, we're starting to see a split in the types of funds attracting assets. Negative returns are beginning to turn investors away from some categories, and ultrashort-term bond funds are clearly benefiting from a reduction in risk mentality. Below, we review some of the recent flow numbers and contrast recent short-term inflows with outflows in high-yield and other categories."

It continues, "The Wall Street Journal wrote recently, 'Bond Investors Pour Into Short-Term Funds.' They explain, 'Investors are flocking to short-term bond funds at a record pace as yields have risen to their highest levels in a decade. For the first time since the financial crisis, investors this year can earn 2% or more on low-risk debt that matures in a year or less. While it's a paltry payout compared with pre-crisis levels, it's a welcome reprieve after years of near-zero interest rates, which dragged down payments on money-market accounts or certificates of deposit and pushed savers to buy riskier bonds, or those with longer maturities, in pursuit of investment income.'"

The article continues, "Assets in mutual and exchange-traded funds that buy ultra-short-term debt rose to a record $168 billion in March, and inflows are near all-time highs, according to Morningstar. Yields on the shortest-term Treasury securities have been climbing steadily since December 2016, when the Fed began to raise interest rates in an attempt to bring monetary policy more in line with pre-crisis norms. The Fed is expected to lift rates at least twice more this year, perhaps as early as next month."

Our 2018 Fact Book piece says, "The Investment Company Institute recently published its "2018 Investment Company Fact Book" which contains an update on the bond fund marketplace in 2017 and a wealth of statistics on bond mutual funds. ICI's chapter on 'Bond Mutual Funds' says, 'Bond fund flows typically are correlated with the performance of US bonds (Figure 3.8), which, in turn, is largely driven by the US interest rate environment. Long-term interest rates fluctuated in 2017, but finished the year only 5 basis points below where they started.'"

It continues, "The 10-year Treasury began 2017 at 2.45 percent, and declined 14 basis points by June 30. Over the same period, the total return on bonds fell to zero. During the second half of 2017, long-term interest rates increased, and finished the year at 2.40 percent. Despite the modest increase in interest rates during the second half of the year, bond mutual funds received positive net new cash flows in every month. In 2017, bond mutual funds had net inflows of $260 billion, more than double the $107 billion in net inflows received in 2016."

The Fact Book explains, "During the first half of 2017, when long-term interest rates were declining, taxable bond funds received $121 billion in net inflows (Figure 3.9). During the second half of the year, investors added $113 billion, on net, to taxable bond mutual funds even though long-term interest rates were moving up."

A BF News brief entitled, "Yields Higher, Returns Down in April," explains, "Most bond fund categories showed increases in yields and negative returns last month. The BFI Total Index averaged a 1-month return of -0.28% and the 12-month gain fell to 1.17%. The BFI 100 returned -0.31% in April and 0.97% over 1 year. The BFI Conservative Ultra-Short Index returned 0.21% over 1 month and 1.31% over 1-year; the BFI Ultra-Short Index averaged 0.13% in April and 1.12% over 12 mos. Our BFI Short-Term Index returned -0.06% and 0.58%, and our BFI Intm-Term Index returned -0.60% and 0.14% for the month and year. BFI's Long-Term Index returned -0.78% in April and 0.65% for 1 yr; BFI's High Yield Index returned 0.38% in April and 2.96% for 1 yr."

Another brief quotes The Financial Times article, "Money Flies Out of Bond Funds." They tell us, "Bond funds hoovered up cash for more than a third of a century as investors were drawn by their promise of modest, reliable returns that balanced out their allocations against more adventurous asset classes. But as global monetary policy tightens and central banks promise further interest rate rises, many commentators have called the end of the 36-year bond bull market. The most popular fixed income funds are losing their lustre."

Yet another brief comments on the Journal's "A Star Bond-Fund Manager Avoids the Shortcuts". It quotes the article, "Mary Ellen Stanek thinks a lot about sleep.... Ms. Stanek and her team at Baird Funds are happy to avoid ... excitement. Ms. Stanek gets her buzz from hearing shareholders say that they think of her bond funds as 'sleep insurance,' something they own so that they can rest easy at night.... Ms. Stanek is president of Baird Funds [and] has built her reputation the same way she has built the track records of her bond funds -- slowly and by avoiding big missteps."

A sidebar entitled, "ICI: Bond Flows Rebound," tells us, "ICI's latest "Combined Estimated Long-Term Fund Flows and ETF Net Issuance with data as of May 2, 2018, says, 'Bond funds had estimated inflows of $3.47 billion for the week, compared to estimated inflows of $2.24 billion during the previous week. Taxable bond funds saw estimated inflows of $3.63 billion, and municipal bond funds had estimated outflows of $163 million.' Over the past 5 weeks through 5/2/18, bond funds and bond ETFs have seen inflows of $23.62 billion."

It adds, "The ICI's latest 'Trends in Mutual Fund Investing - March 2018' shows bond fund assets rising $24.9 billion to $4.095 trillion. Over the 12 months through 3/31/18, bond fund assets have increased by $318.2 billion, or 8.4%. The number of bond funds decreased by 5 to 2,145. This was down 31 from a year ago."

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