To comply with changing international privacy requirements, ICI informs its visitors that we use cookies on our web site. ICI only uses cookies to allow subscribers and members to more easily use our site and to record site utilization. No personal or private information is gathered or stored. More details, including how to disable cookies, can be found on our privacy and cookie policy page. If you disable cookies, you will see this message on future visits to our site. Please click the enable button to consent to accepting cookies.
  • ICI Global
  • Independent Director's Council
Sign In  |  Forgot Password?
Advanced | Tips
  • Home
  • Policy Priorities
    • Fund Regulation
    • Retirement Security
    • Trading & Markets
    • Fund Governance
    • Taxes
    • ICI Comment Letters
  • Research & Statistics
    • Industry Research
    • Investor Research
    • Retirement Research
    • Statistics
  • Government Affairs
    • Financial Services
    • Retirement Security
    • Tax
    • Testimony
  • Industry Operations
    • Fund Accounting, Financial Reporting, and Valuation
    • Fund Distribution, Fund Clearance, and Settlement
    • Operations, Transfer Agent Servicing, and Recordkeeping
    • Portfolio Security Operations
    • Resource Centers
    • Technology, Business Continuity, and Information Security
  • News & Media
    • Media Contacts
    • News Releases
    • Blog: ICI Viewpoints
    • Speeches & Commentaries
    • Opinions & Responses
    • Videos
    • Podcasts
  • Publications & Resources
    • Resource Centers
    • Frequently Asked Questions
    • Fact Books
    • Research Publications
    • White Papers
    • Annual Reports
  • Events
    • ICI Events
    • ICI Global Events
    • IDC Events
    • Past Event Highlights
    • Sponsorship Opportunities
    • Event Contacts
  • About ICI
    • Mission & History
    • Board & Leadership
    • Membership
    • Annual Reports
    • ICI Education Foundation
    • Business Continuity
    • Careers
    • Contact Us

TOPICS

401(k)
Bond Fund
Bonds
COVID-19
Commodity Investments
Corporate Bonds
Cybersecurity
Equity Fund
Equity Investing
Europe
Events
Exchange-Traded Funds
Federal Reserve
Financial Markets
Financial Stability
Fixed Income
Fund Governance
Fund Regulation
GMM
Global
Government Affairs
ICI Global
IDC
IRA
Index Fund
Interest Rate
International
Investment Education
Investor Research
Money Market Funds
Mutual Fund
Operations and Technology
Policy Research
Proxy Voting
Retirement Policy
Retirement Research
Savings
Shareholder
Target Date Funds
Taxes
Trading
Treasury

ARCHIVE

  • 2021
    • January
  • 2020
    • December
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • March
    • February
    • January
  • 2019
    • December
    • November
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • February
    • January
  • 2018
    • December
    • November
    • October
    • September
    • August
    • June
    • May
    • March
    • February
    • January
  • 2017
    • December
    • November
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • March
    • February
    • January
  • 2016
    • December
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • March
    • February
    • January
  • 2015
    • December
    • November
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • March
    • February
    • January
  • 2014
    • December
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • March
    • February
    • January
  • 2013
    • December
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • March
    • February
    • January
  • 2012
    • December
    • November
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • March
    • February
    • January
  • 2011
    • December
    • November
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • March
    • February
    • January
  • 2010
    • December
    • November

Home Viewpoints

Print this page

The Real Lessons to Be Learned from 1994’s Bond Market

By Brian Reid

July 29, 2014

A recent “Heard on the Street” column in the Wall Street Journal (“Heeding 1994's Bond-Market Lesson,” July 27, 2014) is correct in saying that there’s a lesson to be learned from the 1994 bond market—but it draws the wrong lesson. It’s simply incorrect to state that bond funds and their investors make the market more vulnerable to shocks.

The data show that mutual fund investors do not panic or redeem heavily, even in periods of market turmoil—and 1994 is a prime example. In March, the month with the heaviest outflows in that turbulent year, the number of funds with negative outflows increased only slightly.

Similarly, in October 2008—by which time bond mutual funds had taken a larger share of the bond market—very few funds had outflows of more than 5 percent of their assets.

And in the most recent bond market disruption—from May to August 2013, when long-term bond interest rates spiked by more than 1 percentage point—the cumulative outflow from bond mutual funds totaled less than 3 percent of assets. Notably, the outflows from bond funds followed—and did not precede—declines in bond returns.

Yes, bond mutual fund holdings of the U.S. corporate debt market have increased since 2000. A more careful calculation, however, shows that their share of U.S. corporate debt is closer to 11 percent than to the Journal’s figure of 19.4 percent. Investment grade bond funds—which the Journal counts as composed solely of corporate bonds—actually contain Treasury and government agency bonds as well. When the calculation is properly limited to corporate bonds, funds’ share of the market falls by more than one-third from the Journal’s figure.

U.S. Bond Mutual Funds Hold a Small Share of Outstanding Corporate Bonds*

Trillions of dollars; year-end, 2000–2013

View a larger version, including data from 1994–2013

*Includes foreign bonds held by U.S. residents. 

Source: Investment Company Institute and Federal Reserve Board

In either case, the growth of bond funds has been driven substantially by the demographics of aging retirement savers, reinforcing the notion that bond fund investors represent “patient money.” These investors are holding bonds for the same reason that pension funds hold bonds—because they want fixed-income assets, usually for the longer term.

In the face of adversity, mutual funds—including bond mutual funds—have proven resilient time and time again. The data provide compelling evidence of this, and the character of the tens of millions of bond fund investors—individuals focused on retirement and other long-term goals—bear this evidence out. That’s a good lesson for us all.

Brian Reid is ICI’s chief economist.

TOPICS: Bond FundBondsFederal ReserveFinancial MarketsFinancial StabilityFixed IncomeFund RegulationInterest RateMutual FundRetirement ResearchSavingsTradingTreasury


top
  • About ICI
  • About IDC
  • About ICI Global
  • Privacy and Cookie Policy
  • Apply for User Account
  • Business Continuity
  • Contact ICI

Copyright © 2021 by the Investment Company Institute