Bond funds take in $26.4 billion in five days, about 2.6 times their recent pace

The five-day haul ran about 2.6 times the prior pace ^[15], roughly $16 billion more than the old rate would have brought in ^[16]. It also equalled about 5% of everything bond funds have taken in this year ^[17]. Huang said the buyers came from two places: some investors are stepping out of cash to reach the short and ultrashort end, and some are de-risking a bit from equities ^[9]. Cash moving into an ultrashort fund is a bet on yield, or rather, on yield with as little exposure to further rate rises as the buyer can arrange. Investors "are a little bit nervous that yields could continue to go up, because of the fear of what happened in 2022," Huang said ^[10].

The advice runs the same way. Schwab's Cooper Howard recommends ladders of short to intermediate maturities, held slightly under the Agg's duration of roughly six years even with yields above 5% ^[7]. "The higher yields go, obviously, the more attractive fixed income gets," he said ^[8]. Most of the new money, on Huang's account, sits shorter than Howard's ladder ^[9].

Whether the buyers are right depends on where yields go next. J.P. Morgan Asset Management's fourth-quarter outlook shows a very strong total return if yields fall a percentage point, and says higher starting yields cushion a further 1-point rise ^[11]. At six years of duration that cushion is thin. The standard approximation puts a 1-point rise at about a 6% price loss ^[18]. A year of income at roughly the 5-year note's yield covers most of that, leaving the holder about a point down after twelve months ^[20]. The other route runs through stocks. Joy Wiltermuth's MarketWatch report named the stock market, at record highs, as a bigger worry ^[21], and a selloff there could send more of the equity de-risking Huang described into bond funds ^[9].

I think the flows support a narrower claim. Savers are treating 5% as a reason to move cash and some equity money into short bonds, and the flows say little about appetite for the 10-year at these levels. The counter-case comes from Vanguard. Its longer-term forecast for equity returns is about 4% to 7% ^[13], and "Bond yields, today, are right there," Huang said ^[14]. If that comparison is what moves money, the buying would spread into intermediate and core funds. A maturity breakdown of the EPFR and Barclays figures showing most of the $26.4 billion in intermediate or longer funds would prove the narrower reading wrong ^[4].