Bond Fund Outflows Hit Record Level on Tapering Fears

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Mutual and exchange-traded funds hemorrhaged a record volume of bonds in June, according to a fresh report by TrimTabs Investment Research, as investors fear the impact of a scaling back of the U.S. Federal Reserve's bond purchasing program.

"Fund investors are unloading bonds at a record pace. The combined outflow of $47.2 billion is the highest in any month on record, handily eclipsing the previous record of $41.8 billion in October 2008," said TrimTabs CEO David Santschi, in a report released on Monday.

The global sell-off in bonds began on May 22, after the minutes of the Fed's policy meeting signaled that its bond-buying program—which has suppressed yields and boosted stocks—could soon be pared back. Fed Chairman Ben Bernanke echoed these comments at a press meeting last Wednesday, suggesting that asset purchases could be scaled back later this year, if economic data continued to show improvement.

(Read More: Bonds Could Lose $1 Trillion on Yield Spike: BIS)

Bond market outflows continued on Monday, pushing the yield on 10-year U.S. Treasurys to 2.61 percent, close to a 2-year high. Yields on euro zone government bonds also surged upwards, with German 10-year bund yields hitting 1.78 percent, a high not seen since April 2012.

"The strong response to even the suggestion that the Fed could eventually deliver less monetary stimulus shows the degree to which central bank liquidity has encouraged speculative activities that distort asset prices. Never before have central banks manipulated markets as intensely as they are now," said Santschi.

Santschi noted that the 5.0 percent loss the average bond fund has made since the start of May "pales in comparison" to the losses at the height of the financial crisis.

"We would point out that many of today's bond fund holders have never experienced a rising interest rate environment. They probably do not realize the risks in the 'safe' bond investments they made in the past four years, amid the biggest credit bubble the world has ever seen. How will these investors react after they see their quarter-end statements in a few weeks?" he said.

(Read More: Stop 'Retarding' Economies With Loose Policy: BIS)

Bill Blain, senior fixed income broker at Mint Partners, agreed that investors could be hit by hefty losses, due to the rapid swing from bull to bear market.

"Many investors are nursing significant second quarter losses on the back of how quickly the underlying direction of markets swung from the bullish big ease into the shocked realization the 'Big Ease' may be over," Blain said in a morning note on Monday.

Meanwhile, the Bank of International Settlements (BIS) warned of the downside of the market change for bondholders, in its annual report. BIS—which is known as the central bank for central banks—predicted that bondholders in the U.S. alone would lose more than $1 trillion (8 percent of U.S. gross domestic product), if yields across the maturity spectrum rose 3 percentage points.

(Read More: Market Consensus: Get Ready for 3% Treasury Yields)

Blain added that European markets could be worst hit if the "Big Ease" comes to an end.

"Rates aren't at crisis level yet. But with peripheral economies still in recession, and potential bank losses barely covered by the ESM [European Stability Mechanism]'s new-found 60 billion euros ($78.7 billion) of possible bank rescue funds, you have to wonder what might happen when banks finally admit pretend-and-extend can't continue, and loan losses trigger new capital calls?" he said.

"All of which screams stay away from European banks—if the capital risks are rising, recession remains the most likely outcome and ESM funds are insufficient, then it's kind of obvious that bondholders will be on the hook... I've got a very bad feel about France and Spain."

By's Matt Clinch. Follow him on Twitter @mattclinch81.