At first, it looked as though investors had pulled a record amount of money from US investment-grade bond funds.
Then one unusually large transaction changed the whole picture.
Data from LSEG’s Lipper service initially showed that investors had withdrawn a net $7.1 billion from these funds during the week ending July 22. The figure included an $8.2 billion withdrawal recorded on July 20.
Investment-grade bond funds mainly hold bonds judged to have a relatively low risk of default. They are often used by investors who want income without taking the higher risks linked to lower-rated debt.
The $7.1 billion figure appeared to show a sudden and unusually large move away from these investments. It was reported as the biggest weekly withdrawal on record.
One fund changed the result
Lipper later found that a large transaction involving one short-to-intermediate-term bond fund had distorted the wider figures.
The company removed the fund from its weekly report while it investigates what happened. Lipper said it is checking whether the movement was a transfer or another type of operational event, according to Reuters.
Once that fund was excluded, the result moved in the opposite direction. US investment-grade bond funds showed net inflows of $1.54 billion for the week, Reuters reported, citing Bloomberg.
A net inflow means more money entered the funds than left them. The difference between the two readings was more than $8 billion.
Why fund-flow figures matter
Fund-flow data measure how much money investors place into funds and how much they take out. Analysts use the figures to get a quick idea of which parts of the market are attracting money and which are losing it.
LSEG describes Lipper’s fund-flow data as a way to follow current and past market sentiment.
Large withdrawals can suggest that investors are becoming worried. In this case, however, most of the apparent movement came from one fund rather than a broad wave of selling across the category.
A transfer can also create a misleading impression. If money moves from one fund into another, the first fund records an outflow even though the investor may still own similar bonds elsewhere.
Lipper has not confirmed that this is what happened. Its review is still under way, and the company has not yet provided a final explanation for the transaction.
Weekly figures can change
Fund-flow reports are useful because they are published quickly, but early figures sometimes need to be corrected.
The Investment Company Institute, which publishes a separate set of US fund-flow estimates, says its weekly figures can be revised because of data adjustments, fund reclassifications and changes in the number of funds reporting.
The lesson is simple: a large headline number may come from one unusual transaction rather than a major change in how investors feel.
Until Lipper finishes its review, the exact cause remains unknown. What is clear is that the original $7.1 billion withdrawal did not describe the wider direction of investment-grade bond funds once the single fund was removed.
