Investor Appetite Dwindles for Blue-Chip Bond Funds Amid Losses

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Individual investors might finally be losing their taste for investment-grade bond funds after taking near-record losses in the first quarter of the year.

Flows into the asset class hit their lowest level last week in about five months, according to data from Refinitiv Lipper, and some investors are bracing for net outflows.

Funds that buy bonds of blue-chip companies like Coca-Cola Co. and Microsoft Corp. have lost about 4% this year, according to data from Bloomberg Barclays, counting price changes and interest payments. Driving the decline: a selloff in U.S. Treasurys, which act as a benchmark for corporate debt.

Nevertheless, individual investors had continued plowing money in and the funds’ assets have grown about 3% since the end of December to $1.68 trillion, according to data from Lipper. Much of the buying was based on past performance, as investment-grade bonds returned a stellar 10% in 2020, outstripping almost every other fixed-income strategy, according to data from Citigroup Inc.

The tide may now be turning. Inflows dropped 48% in the last week of March from the previous week to $1.7 billion, the smallest amount of net purchases since early November when they briefly turned negative, according to data from Lipper. The four-week average inflow fell to $3.4 billion from $4.4 billion at the end of February.

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