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Exodus From Bonds? Not Yet

By MARK JEWELL and MATTHEW CRAFT

Market pros call it the Great Rotation. That's the long-awaited scenario when investors take their money out of bonds and sink it into stocks.

It was the buzzword this month when the Dow Jones industrial average reached a record high. The idea was that investors were confident enough in the economy to shed their financial crisis fears and leave the safety of bonds.

But it's not happening.

Money keeps flowing into bonds. Industry consultant Strategic Insight says U.S. bond mutual funds have attracted $64 billion in cash in the first two months of the year, just below last year's pace of $68 billion over the same period.

Stock mutual funds had net deposits of $76 billion through February, according to the consultancy. While that is up sharply from $14 billion a year earlier, the cash for stocks is not coming at the expense of bonds, according to more recent snapshots of investment flows.

Instead, investors are withdrawing from money-market funds, which are often used as a parking spot for cash, according to EPFR Global.

"The expectations of a big exodus from bonds are way overblown," says David Santschi, CEO of TrimTabs Investment Research, a fund-tracking firm.

A stock market crash and recession have made bonds especially appealing since 2008, when the nation was in the throes of the financial crisis. The abundance of buyers has pushed bond prices up and sent yields lower, reducing interest payments to investors.

Even with low yields, bonds will continue to attract retiring baby boomers and others who want reliable income for daily expenses. The yield on the 10-year Treasury note â¿¿ a benchmark â¿¿ is hovering under 2 percent. Other types offer higher yields. Investment-grade corporate bonds yield 3 percent and riskier "junk" bonds yield just under 6 percent.

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