U.S.-based taxable bond funds attract $3.3 billion: Lipper

By Sam Forgione

NEW YORK (Reuters) - Investors committed $3.3 billion to U.S.-based taxable bond funds in the week ending Sept 25 in the wake of the Federal Reserve's decision not to reduce its bond-buying program, data from Thomson Reuters Lipper service showed on Thursday.

It was the largest net cash flow into taxable bond funds since the week ended July 24. For the third straight week, investors committed money to taxable bond funds following months of selling pressure since the Fed signaled it might ease its monthly bond purchases. On September 18, it decided to leave its $85 billion in monthly bond purchases unchanged.

The yield on the 10-year U.S. Treasury note fell six basis points to 2.63 percent over the seven-day period. Bond yields move inversely to their prices.

High-yield junk bond funds drew $3.1 billion in the week, also the most in nine weeks, while investment-grade bond funds attracted $1.3 billion, up from inflows of $420 million the previous week.

In addition to high-yield bond funds, investors showed an appetite for risk by pouring a net $3.5 billion into stock funds, down from big inflows of $18.1 billion the prior week but still marking the third straight week of new demand for the funds.

Investors were willing to take more risk in light of the Fed's decision to maintain the pace of its bond-buying program, said Tom Roseen, head of research services at Lipper.

The Fed's bond-buying has kept interest rates low, spurring investors to seek higher income and greater risk in assets such as stocks and junk debt.

Despite the increased risk appetite, investors also poured $28 billion into money market funds, marking the largest net inflow into the funds since January. Money market funds are low-risk vehicles that invest in short-term securities.

"Uncertainty is the name of the game here," said Roseen on the inflows into money market funds. He cited concerns over a looming vote on raising the U.S. debt ceiling, a measure needed to avoid the risk of a debt default.

Funds that hold non-U.S. stocks attracted $3.9 billion in new cash, while funds that hold U.S. stocks had outflows of $452 million. The outflows from U.S. stock funds came as the Standard & Poor's 500 stock index fell 1.9 percent over the reporting period after surging to record highs on the day of the Fed announcement.

Stock exchange-traded funds accounted for $2.9 billion of the overall inflows into stock funds. Stock mutual funds took in $544.6 million, the smallest inflows into the funds since early June.

ETFs are generally believed to represent the investment behavior of institutional investors, while mutual funds are thought to represent the retail investor.

Emerging market stock funds pulled in $1.9 billion of the total inflows into stock funds. Roseen said that the inflows came partly as a result of the Fed's decision to maintain its easy money policies, which have driven demand for emerging markets.

The MSCI emerging market equities index rose 0.7 percent over the reporting period.

Japanese stock funds also took in $541 million, marking their third straight week of inflows as Japan's Nikkei average rose 0.8 percent over the weekly period.

Commodities and precious metals funds attracted $53 million, their first inflows in four weeks. Gold prices rose 0.9 percent to $1,334.24 an ounce on Wednesday, extending Tuesday's gains.

The weekly Lipper fund flow data is compiled from reports issued by U.S.-domiciled mutual funds and exchange-traded funds.

(Reporting by Sam Forgione; Editing by Leslie Gevirtz and Ken Wills)