On the investment landscape, a swath of market commentators are spotting what they call a bond bubble. Lately we’ve had stock bubbles, housing bubbles and credit bubbles. The common thread is an unfortunate ending. But rather than suggest here that we have a developing threat, let’s see what’s prompting the speculation in the first place.

According to the Investment Company Institute (ICI), U.S.-registered investment companies – mainly mutual funds but also closed-end funds, exchange-traded funds and unit investment trusts – held $12.2 trillion in assets at year-end 2009. Clearly these funds play a significant role in the U.S. economy. In fact, 21 percent of household assets are invested in them. So it bears a look at the flow of money to these funds to gauge market sentiment, direction and perhaps bubbles.

The total value of mutual fund assets grew quickly from 1995 through 2007, moving from $3 trillion to $12 trillion. That trend was abruptly halted in 2008 by a 37 percent drop in the Standard and Poor’s 500 stock index, coupled with $234 billion removed from stock funds. By the end of 2009, the total value of mutual fund assets had declined to $11 trillion. In fact, there was a record outflow of dollars from mutual funds in 2009.

But the real eye-opener in 2009 was the record $376 billion that went into bond funds. If we look at just stock and bond funds from the start of 2007 through August 2010, more than $165 billion came out of stock funds, and more than $726 billion went into bond funds. Reviewing the ICI data back to 1984, such a money flow is unprecedented.

Investment returns offer a partial explanation for the recent move away from stocks and toward bonds. For example, in the three years ending Aug. 31, 2010, the S&P 500 had a total return of minus 8.6 percent, and for the 10-year period it was minus 1.8 percent. On the bond side, the Barclays Aggregate Bond Index had three- and 10-year average annual returns of 7.65 percent and 6.47 percent, respectively.

A related explanation is market volatility. In the past 12 years, there have been three bull market periods and three bear market periods, with the end result being no overall return. This year’s choppy pattern has six whippy rallies and selloffs, and again, no return. The “Flash Crash” of May 6 did not help matters; to date there is no consensus explanation for that event.

Demographic forces and the demand for income and yield are largely behind the surging flow of money to bonds. With the median age of the Baby Boomers at 55, we seem to be entering an era of correcting the Boomers’ underweight in bonds and overweight in stocks.

Whether bond prices are in a bubble zone is another question. Suffice to say that what might naturally result from market and demographic forces may not be the typical path to a bubble.

Peter Percival (ppercival@syversonstrege.com) is a registered investment adviser at Syverson Strege & Co. in West Des Moines.