Interest Rate Rise Slows Cash Flow Into Mutual Funds

A jump in interest rates sharply curtailed the torrent of money flowing into the nation’s mutual funds last month, according to an industry report issued Thursday.

The Investment Company Institute, a trade group in Washington, said net cash flow into long-term funds dropped to $15.2 billion in November from $25.9 billion in October.

Bond and income funds, in particular, suffered a slowdown in growth, with inflows totaling $6.1 billion, less than half their October take of $12.3 billion.

But stock funds’ net receipts also dwindled, to $9 billion from $13.5 billion in October.

The slowdown in new money, coupled with declines in the prices of some portfolio investments, helped keep overall fund assets from a much-anticipated crossing of the $2-trillion level.

The ICI said the total under management by the universe of 4,500 mutual funds, both long- and short-term, stood at $1.983 trillion as of the end of November, compared to $1.976 trillion a month earlier.

Both the bond and stock markets were unsettled in November by an upswing in long-term interest rates that lifted yields on long-term Treasury bonds from about 5.75%, their lowest level in a generation, to about 6.3%. Bond yields have since hovered in a narrow range near 6.3%.

A rise in interest rates depresses bond prices and hence the net asset values of funds investing in bonds.