The November issue of our Bond Fund Intelligence, which was sent out to subscribers Thursday morning, features the lead story, "Man Bites Dog: Big Outflows from Bond Funds in October," which reviews bond funds' first asset decline in years, and the profile, "Federated Ultrashort Bond Fund's Bauer Balances Risks," which interviews Federated Investors' Senior PM Randy Bauer. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund yields jumped in October and returns plunged. We excerpt from the latest issue below. (Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, and mark your calendars our 3rd annual Bond Fund Symposium, which will take place March 25-26, 2019 in Philadelphia.)

The lead BFI story says, "Bond fund assets declined by $56.3 billion in October, their biggest decrease in the history of BFI. (We started publishing in December 2015.) Funds and ETFs saw outflows for 5 weeks in a row, but had a small inflow in the most recent week. The October declines follow 21 straight months of increases. Our new BFI Daily shows flows stabilizing in recent days, but these big declines could well mean that the inflow party is over for bonds."

It continues, "ICI's most recent weekly 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance' report, with data as of Nov. 7, 2018, tells us, 'Bond funds had estimated inflows of $777 million for the week, compared to estimated outflows of $18.60 billion during the previous week. Taxable bond funds saw estimated inflows of $1.69 billion, and municipal bond funds had estimated outflows of $909 million.' Over the past 5 weeks through 11/7/18, bond funds and bond ETFs have seen outflows of $37.6 billion."

The piece adds, "ICI's latest monthly '`Trends in Mutual Fund Investing - Sept. 2018' shows bond fund assets increasing a mere $0.3 billion to $4.166 trillion. Over the past 12 months through 9/30/18, bond fund assets have increased by $175.9 billion, or 4.4%. ICI's release tells us, 'Bond funds had an inflow of $11.26 billion in September, compared with an inflow of $13.05 billion in August.' The number of bond funds increased by 4 in Sept. to 2,136. This was down 19 from a year ago."

Our Federated "profile" says, "This month, Bond Fund Intelligence interviews Randall Bauer, Senior Vice President & Senior Portfolio Manager with Federated Investors. Bauer is Head of Federated's Structured Finance & Low-Duration Strategies Group and manages the $3.6 billion Ultrashort Bond Fund and the $1.3 billion Short-Term Income Fund. We discuss the ultra-short sector, strategies and supply, and maintaining a 'balanced risk profile.' Our Q&A follows."

BFI says, "Tell us about your history. Bauer responds, "I've been with the firm since 1989, and before that I spent almost eight years at PNC as a commercial lender, so I have a credit background. I came to Federated and I worked in the high-yield area for a couple of years and got into the bond area.... At the end of 1991, we repositioned one of our existing funds and wanted to make it a low-duration product.... It still exists today, and it's called the Federated Short-Term Income Fund."

He continues, "We realized there was an arbitrage opportunity in the term asset-backed securities market.... We combined the concept of low-duration and the liberal use of asset backed securities with the addition of a multi-sector approach.... The main drivers of our low-duration strategy over the years has been that combination of corporates and securitized assets." (Watch for more excerpts from this article later this month, or see the latest issue of BFI.)

Our Bond Fund News includes the brief, "Yields Jump, Returns Slide in October." It explains, "Bond fund yields rose sharply and returns fell last month all fund categories but Ultra-Shorts. The BFI Total Index returned -0.63% for 1-month and -0.45% over 12 months. The BFI 100 returned -0.64% in October and -0.56% over 1 year. The BFI Conservative Ultra-Short Index returned 0.10% over 1 month and 1.75% over 1-year; the BFI Ultra-Short Index averaged 0.09% in Oct. and 1.36% over 12 mos. Our BFI Short-Term Index returned -0.07% and 0.36%, and our BFI Intm-Term Index returned -0.75% and -1.68% for the 1-mo and year. BFI's Long-Term Index returned -1.19% in Oct. and -2.45% for 1yr; BFI's High Yield Index returned -1.23% in Oct. and 0.91% over 1-yr."

Another brief, entitled, "New J.P. Morgan Muni ETF," explains, "A press release entitled, 'J.P. Morgan Asset Management Launches Ultra-Short Municipal ETF: JMST' tells us that JPMAM, 'announced the launch of the JPMorgan Ultra-Short Municipal ETF (JMST), an actively managed fixed-income ETF that focuses on tax-exempt yield and invests in municipal securities with less interest rate sensitivity. The strategy invests primarily in investment grade, ultra-short municipal bonds that are exempt from federal income tax. The fund ... seeks to maintain a target duration range of two years or less.... The team is led by co-portfolio managers, Rick Taormina and James Ahn."

A third News brief, "Barron's Writes 'Going Long on Short'. They tell us, "Investing in shorter-term bonds, a wasteland for many years thanks to ultralow interest rates, is a lot more appealing these days -- though it's hardly risk-free. The two-year U.S. Treasury note is now yielding around 2.87%, up from 1.55% a year ago. The recent spike in yields has also made shorter-term securities much more competitive against longer-term holdings and dividend-paying stocks."

Finally, a sidebar entitled, "JPM on STBF Holdings," says, "A recent J.P. Morgan 'Short-Term Fixed Income' weekly included a 'Short-term bond fund holdings update.' It tells us, 'In general, the rise in interest rates during the course of this year has not been friendly to bond returns. Our GABI aggregate index has returned -2.3% year to date (through 10/24/18). However, the very front end of the bond market universe has fared somewhat better. Data show that many ultrashort bond fund shave managed to generate positive returns that in many cases still exceed average yields earned by MMFs. However, short-term bond funds have generally not been able to match the ultrashorts.'"

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