By Yali N’Diaye

WASHINGTON (MNI) – The president’s tax compromise reached with
congressional Republicans Monday would extend income, dividend and
capital gains tax rates for two years, benefitting equities to the
detriment of bonds, fund flow data provider EPFR reported Friday.

And when in doubt, investors went from bonds to money markets
rather than straight to equities.

Investors translated the proposed tax framework “into expectations
of higher global growth rates, a growing pile of U.S. debt and a weaker
dollar,” EPFR said.

All the equity funds followed by EPFR registered inflows in the
week ended December 8, “while U.S. bond funds posted outflows for the
third time in the past four weeks as investors bailed out of funds
specializing in municipal and intermediate term debt.”

Overall, however, bond funds — not limited to U.S. bond funds —
narrowly managed to avoid outflows in the December 8 week, taking in
$146 million, while equities recorded inflows of $13.71 billion. U.S.
bond funds redemptions exceeded $1 billion.

On the other hand, money market inflows recorded a 22-week high at
$32.5 billion.

“Those that still aren’t that comfortable with equities appear to
be moving their money back into cash by way of Money Market Funds,” said
EPFR Global Managing Director Brad Durham.

“Outflows from U.S. bond funds were driven by funds with
intermediate (5-8 years) mandates,” EPFR said.

In the muni sector, while funds continued to experience outflows,
redemptions subsided “despite the increasing — and largely negative —
attention being paid to the health of state and municipal finances.”

Earlier Friday, mutual fund research firm Strategic Insight
reported that investors redeemed $7.4 billion in net from muni bond
funds in November.

“The net outflows from muni bond funds were largely triggered by
modest NAV declines, as well as by liquidity conditions, including the
coming end of the Build America Bonds program and an unusually large
slate of pending muni new issues,” Strategic Insight commented.

On a global basis, both European and emerging market bond funds
experienced outflows.

“Redemptions from Western Europe Bond Funds also lost momentum,
although not sufficiently to stop their current outflow streak from
hitting eight consecutive weeks, as flows into Germany Bond Funds hit an
11-week high,” EPFR noted.

** Market News International Washington Bureau: 202-371-2121 **

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