Lipper: US Bond Funds End Q3 in the Black

A report from Lipper, Inc., said the average bond fund returned 1.49% during the quarter and 2.94% year to date. This comes as the average diversified stock mutual fund plummeted by 16.3% reflecting the badly battered equity markets, a Reuters story said.

The numbers simply reflected investors’ frenzy to flee from equities to the relative quality of fixed income, industry observers said. Talk of a Middle Eastern conflict against Iraq and the continued stream of news about corporate scandals also contributed to the exodus toward bonds, Reuters said.

According to Lipper, bond investors didn’t earn as much as they might have if corporate debt and government debt funds hadn’t moved in opposite directions, Reuters said. For example, Lipper data show that General US Treasury Funds returned 8.12 % in the third quarter while High Yield Funds which invest in junk bonds lost 3.54 %.

The reason for the opposite movement, according to Reuters: government bond funds benefited from the Federal Reserve’s interest policies that have pushed down rates to 40-year-lows and kept them there for months. The anemic corporate earning season among many firms has hit the corporate debt funds hard, Lipper said.  

In the third quarter, Corporate Debt A Rated funds returned 4.18% and Corporate Debt BBB Rated funds returned 2.73%, Lipper data shows. This is still lower than U.S. Government funds, which returned 5.01% during the same time.