Intermediate Bonds Funds Drawing Investor Interest

Investors appear to be taking a Goldilocks-like approach to bonds — not too short and not too long. According to a Reuters report, investors have been opting for intermediate term-bonds funds of the Treasury variety as uncertainty over the U.S. Federal Reserve's policy looms.

The Fed recently standing pat on interest rates further drives the uncertainty. But the overall expectation is that the central bank will begin cutting rates when economic data confirms that decision. In the meantime, it appears investors are willing to accept more rate risk, but also minimize credit risk by staying in government debt.

"Investors are flocking to U.S. medium-term government bond funds and helping push their assets to record highs, as uncertainty about the Federal Reserve's policy path prompts them to seek the sweet spot between income and protection," the report said.

The start of this year has been marked by record issuance in both the public and private sectors. With the notion that rates will eventually fall, issuing bonds now before yields subsequently drop should draw investors. And so far, it has -- record issuance has been meet by more demand.

"According to Morningstar Direct data, U.S. medium-term government bond funds, which include Treasuries and debt issued by government-linked agencies, attracted $9.8 billion in the first two months of this year," the report added. "That compared with just $2.3 billion for long-term government funds and an outflow of $3.5 billion from short-term government bond funds."