Speculative-Grade Bond Funds Report First Net Withdrawals in Eight Weeks

Junk bond mutual funds reported their first outflows in eight weeks even as the extra yield investors demand to own speculative-grade debt instead of Treasuries narrowed.

High-yield, high-risk mutual funds had $186 million of net withdrawals for the week ended Sept. 1, bringing the year’s total inflows to $5.29 billion, Bank of America Merrill Lynch Global Research analysts wrote Sept. 2 in a report citing Lipper FMI data. Mutual funds that invest in bank loans had $101 million of inflows, the ninth straight week of increases.

“Market observations suggested a divided picture,” Bank of America analysts Mike Cho and Oleg Melentyev in New York wrote in the report. High-yield “bonds declined earlier in the week amid volatility, while recovering the two most recent sessions post positive economic data.”

Junk bond spreads narrowed 12 basis points to 680 basis points for the week ended Sept. 1, Bank of America Merrill Lynch index data show. Spreads on the debt, which widened to 693 basis points on Aug. 26, matching the highest last month, decreased to 672 basis points on Sept. 2, the lowest since Aug. 10. A basis point is 0.01 percentage point.

Reports this week showed initial jobless claims declined in the week ended Aug. 28 and the number of contracts to purchase U.S. previously owned houses also unexpectedly rose in July, a sign the market may be starting to stabilize after the expiration of a homebuyer tax credit.

Private Payrolls

Labor Department figures in Washington showed today private payrolls that exclude government agencies climbed 67,000, after a revised 107,000 increase in July that was more than initially estimated, The median estimate of economists surveyed by Bloomberg News called for a gain of 40,000.

While institutional investors withdrew cash from the funds, retail investors added money, the analysts wrote, citing data from Lipper FMI and Cambridge, Massachusetts-based research firm EPFR Global.

Leveraged loan prices rose yesterday to the highest since Aug. 23. The Standard & Poor’s/LSTA US Leveraged Loan 100 Index increased 0.09 cent to 89.51 cents on the dollar.

Junk bonds and leveraged loans are rated below Baa3 by Moody’s Investors Service and lower than BBB- by S&P.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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