Bond funds had their worst month in at least 20 years and possibly ever, according to data released by Lipper Thursday.

Bonds bled $15.3 billion in August, well ahead of the $11 billion in outflows suffered in November 1994. Things were looking rosy in February, when investors poured $19 billion in net inflows into the product, but things have surely gone sour recently. Short and intermediate bond funds saw $9.1 billion walk out the door, while $6.2 billion in long-term bond assets filed out. Outflows in bonds totaled an estimated $8.8 billion in July and marked the first outflow since December 2001and the largest outflow since late 2000

Money market funds were not faring much better, as nearly $25 billion drained away in August, $22 billion of which was in taxable funds. So far, $175 billion has exited the product so far this year, nearly quadrupling 2002’s full year total.

"The abandonment of bond funds after a torrid love affair into last winter is striking, and speaks to a short-term mentality," said Don Cassidy, senior equity analyst at Lipper. "The inflows into stock funds are impressive, on the other hand. The passage of time has cumulatively helped to heal investors’ wounds, and a strong and sustained rise in stock prices since mid-March has boosted confidence."

Equity funds continued their full charge ahead, gaining $26 billion in net inflows in the month, the third-largest total in more than three years. In July, equity funds pulled in $21 billion. Investors are still choosing equity funds wisely, Cassidy noted, but the pattern of six consecutive months of new inflows in to equity funds shows an increasingly bullish mindset. This marks the longest streak of monthly inflows since May 2002 capped an eight-month drive.

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