The March issue of our Bond Fund Intelligence, which was sent to subscribers Monday morning, features the lead story, "Assets Continue Slide on Both Negative Returns & Outflows," which looks at bond funds' 3-month slide; and, "ICI Examines Bond Funds During Crisis; Survey on 3/20," which quotes from a new ICI study. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns fell and yields jumped again in February. We excerpt from the new issue below. (Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data. Also, we look forward to seeing some of you at our upcoming Bond Fund Symposium, March 28-29 in Newport Beach, Calif!)
Our "Assets Continue Slide" piece reads, "After hitting a record in November 2021, bond fund assets have fallen for three months in a row, with big declines the past two months. Crane Data shows bond fund assets declining by $60.2 billion in February, bringing the year-to-date decline to $155.1 billion (through 2/28). (Assets declined by $14.7 billion in Dec.) Given the continued declines in returns, it looks like we could be in for further outflows in coming weeks. We review the latest statistics below.
It continues, "ICI's 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance,' comments, 'Bond funds had estimated outflows of $13.15 billion for the week [ended March 2], compared to estimated outflows of $3.70 billion during the previous week [and $9.42 billion the prior week]. Taxable bond funds saw estimated outflows of $9.74 billion, and municipal bond funds had estimated outflows of $3.41 billion.' Over the past 5 weeks, bond funds and ETFs have seen outflows of $44.25 billion."
Our "Profile" piece states, "A new paper from the Investment Company Institute, entitled, 'ICI Bond Mutual Fund Survey Brings Facts to the Debate,' written by Shelly Antoniewicz and Sean Collins, tells us, 'New ICI research provides a detailed picture of bond mutual funds’ role in the fixed-income markets during March 2020. ICI urges regulators to use this information when considering policies to enhance the resilience of markets. Otherwise, policies based on inaccurate data or inapt narratives could harm bond mutual fund investors.'"
It continues, "Policymakers in the United States and globally continue to evaluate the pandemic-driven market turmoil of March 2020 with a view toward enhancing market resiliency. As they perform their analysis, we urge them to ensure that their conclusions are built upon solid evidence."
ICI says, "One area of intense focus is bond mutual funds. Policymakers have repeatedly claimed that bond mutual funds, faced with historically high outflows during March 2020, amplified or contributed significantly to stresses in the fixed-income markets, as these quotes illustrate: 'Forced sales of [bond] fund assets contributed to a sharp deterioration in fixed-income market liquidity that necessitated additional emergency interventions by the Federal Reserve;' and, 'The liquidity mismatch between [bond] funds' assets and liabilities contributed to shock amplification, with investor outflows and the associated asset fire-sales by fund managers combining to eventually threaten broader financial stability. [Bond funds sought] initially [to] meet increased redemption demand using cash and cash equivalents but were unsuccessful, forcing them to ultimately fire-sell bonds into illiquid markets.'"
Our first News brief, "Returns Fall, Yields Surge Again in Feb.," comments, "Bond fund returns fell sharply and yields jumped again last month. Our BFI Total Index dropped 0.88% over 1-month and fell 1.04% over 12 months. The BFI 100 returned -0.88% in Feb. and -0.99% over 1-year. Our BFI Conservative Ultra-Short Index was down 0.16% for 1-month and down 0.34% for 1-year; Ultra-Shorts declined 0.27% and 0.37%, respectively. Short-Term decreased 0.56% and 1.25%, and Intm-Term fell 1.02% in Feb. and fell 1.67% over 1-year. BFI's Long-Term Index fell 1.59% in Feb. and fell 2.27% over 1-year. Our High Yield Index fell 0.86% in Feb. but gained 1.12% over 1-year.
We also quote Forbes.com on "Why Almost Every Bond Fund Is Down This Year." They explain, "If you own a bond fund, it's probably down in recent months. Let's talk about why.... We'll start with the iShares 20+ Year Treasury Bond ETF (TLT) TLT -1%. TLT is the knee-jerk investment that many 'first-level' investors buy when they are looking for bond exposure. Unfortunately, there are two big problems with TLT: It only yields 2.1%. Worse yet, its 19-year duration is drubbing its total returns.... Over short time periods, most fixed-rate bond funds trade opposite long-term Treasury rates. When rates take off, bond prices suffer."
A third News brief is headlined, "Bloomberg Writes 'Bond Funds Lurk as a Challenge to Fed's Inflation Fight.'" The editorial says, "Bond funds are in a bad spot, and it will probably get worse. A crash to Earth for growth stocks and cryptocurrencies is one thing, but a sharp decline in mainstream bond mutual funds could spell enormous trouble. Signs are emerging of the beginnings of a potential downward spiral in these funds, which could ultimately lead to redemption halts and ... panic by retail investors. That could pose the biggest challenge to the Federal Reserve's plans to tame inflation through rate increases."
Yet another News brief, "Kiplinger's 'Consider Short-Term Bond Funds,' quotes, "Savers craving substantial bank and money market interest rates courtesy of the Federal Reserve are still waiting. You might see 0.75% for six months by the second half of 2022, which I agree beats prolonged zero yields.... Do not despair. The picture is brighter for fans of short-term bond mutual funds and exchange-traded funds (ETFs)."
Also, a BFI sidebar, "Barron's Profiles American Funds Strategic Bond," states, "In a recent 'Fund Profile,' Barron's writes, 'This Bond Fund Shuns Mere Yield.' They tell us, 'You can learn a lot about your bond fund by looking at how it performed during the pandemic market slide in 2020. If it provided ballast and stability to your portfolio, it did its job. If it was just another source of downside risk, it might be time to look for a new fund.'"
Finally, another sidebar, "Vanguard Trims ETF Fees," comments, "The Independent Advisor for Vanguard Funds newsletter writes, 'Vanguard just filed the annual reports for a slew of funds including some of its largest and most popular index funds and ... it's getting harder ... for the behemoth to keep trimming costs. Of 97 share classes on 27 funds including ... Total Bond Market Index ... four ... saw expense ratios fall and three rose.... All the trims were applied to four bond ETFs."
