Mutual fund managers are shaking their heads over the apparent reluctance of investors to buy funds that invest solely in U.S. government securities, says Mutual Fund News Service. At a time when investors are seeking to avoid risks, few seem to be buying government bond funds, whose investments are among the safest around. Money market mutual funds, another safe investment group, have pulled in $45 billion in new money since the beginning of the year. Government bond funds, however, have lost $3.1 billion to investors redeeming their shares.
Fund managers say investors still are haunted by fears of a fall in the share prices of government bond funds. Many investors were caught short in early 1987 when interest rates shot up and prices fell. Fund managers are predicting that rates will fall, which would give investors capital gains. If rates fall, money market fund investors will get hurt because they will have to accept lower yields.