What Seemed Like a Bond-Market Exodus Was a Transfer at Fidelity

(Bloomberg) -- The biggest withdrawal from U.S. high-grade bond funds in three years came down to internal transfers at Fidelity Investments, rather than investors redeeming funds.

Refinitiv's Lipper, which tracks the data, reported $5.1 billion of net outflows in the week ended May 29, the largest exit from the funds since December 2015. That was largely driven by an internal transfer between Fidelity funds, a spokesman for Fidelity and Lipper's head of research services Tom Roseen confirmed Friday.

With that adjustment, high-grade bond funds actually saw net inflows of $1.4 billion, according to Roseen. That's more in line with EPFR, another data provider which competes with Lipper, which reported high-grade inflows of $2.67 billion for the weekly period.

For now, Lipper will not modify the numbers, Roseen said. While this week's numbers aren't reflective, they will be corrected next week because the Fidelity fund that received the transfer will show an inflow, he said. Fidelity also reports its data monthly, meaning the inflow will show up in the next data set, he said.

Outflows Explained

The transfer concerned the Fidelity U.S. Bond Index Fund, class F.

“The flows referenced reflect a 1:1 asset movement between Fidelity funds - from share class F in the funds noted to their dedicated Series fund counterparts, ” a Fidelity spokesman said in an e-mailed statement. “Fidelity Series funds are mutual funds that are not offered to the public and instead are exclusively offered to other funds managed by Fidelity.”

When Roseen saw the magnitude of the outflow was largely driven by the Fidelity funds, he had immediately called the company to question the data. They initially told him it was a liquidation from one investor, according to Roseen. A spokesman for Fidelity has since confirmed to Bloomberg News that the assets were in fact an internal transfer. Accounting for that, it actually translates to an inflow, Roseen said.

“Had it been confirmed, Lipper would have removed that data set,” Roseen said in an interview Friday. “I would have changed it to show the correct flows and we would have reported it differently.”

There have been few weekly outflows from high grade bond funds this year. Investors withdrew $756 million last week after a 16-week stretch of inflows. Credit investors have been on edge as trade tensions intensify and the yield curve inverts, suggesting a recession could be near. Treasuries and German bunds have rallied as investors seek safe haven assets.

“It is hard to imagine such a large outflow given the strong bond price appreciation this year,” Bank of America Corp. strategists led by Hans Mikkelsen said in a report Thursday after the initial Lipper data were released.

To contact the reporter on this story: Molly Smith in New York at msmith604@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Sally Bakewell

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