NEW YORK – Disappointed by steep declines in equities, investors poured about $6.9 billion into U.S. taxable bond mutual funds in March, the third straight month of sizable inflows, the Investment Company Institute said on Monday.
The inflows into the relatively ``safe harbor'' investments came as equities were battered by one of the worst first-quarter earnings periods for blue chips in a generation.
Taxable bond funds saw almost $7 billion in inflows in February, and $7.57 billion in January, bringing the year-to-date total to $21.47 billion, said the ICI, a Washington, D.C.-based trade group. That reverses last year's negative trend, when taxable bond funds saw $19.8 billion in outflows, ICI said.
Money market mutual funds had cash inflows of $13.47 billion in March, following inflows of $54.9 billion in February, ICI said.
Meanwhile, investors pulled $20.28 billion from stock mutual funds in March, the largest one-month outflow ever, ICI said. That followed an outflow of $3.3 billion in February and represented the first back-to-back monthly outflows in more than a decade.
Assets of stock mutual funds declined by $281.9 billion in March, mostly from share price declines as the slowing economy took a toll on blue chip stocks.
For the quarter, the Dow Jones industrial average fell 8.4 percent, its worst first quarter since 1978, while the Nasdaq index tumbled 25.5 percent and the S&P 500 slumped 12.1 percent.
Although stocks rebounded in April, bonds are not likely to lose their allure, Deutsche Banc Alex. Brown said in a recent research report.
``The outlook for returns from the equity market remains very depressed compared to previous years,'' it said. ``As earnings forecasts continue to be downgraded, there is a significant amount of investment that will sell into any equity rally.''
Deutsche Banc is one of several Wall Street investment banks that have recently urged investors to overweight corporate bonds, which are among the top performers of any fixed-income class this year.
Corporate bonds have returned 3.633 percent this year, according to data from Merrill Lynch & Co. Only junk bonds, with a return of 4.285 percent, and U.S. Treasury inflation-linked bonds, with a return of 5.552 percent, have fared better, it said.
Corporate bonds are expected to benefit from improving credit quality as companies cut back capital spending in the face of slowing revenues. ``In the current environment, if you are overly focused on the near-term earnings outlook, you will likely miss the underlying improvement in credit fundamentals,'' Deutsche Banc said.
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