Junk Debt Liquidity Threatened by Mutual Fund Holdings, UBS Says
- High-yield debt concentrated in funds with redemption risk
- Mismatch in liquidity of funds and bonds creates instability
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High-yield bonds and loans may suffer more in a downturn than in previous crises because they’ve become concentrated in funds that allow early redemptions, according to UBS Group AG.
More than 50 percent of high-yield bonds and 35 percent of leveraged loans are held by funds with “significant redemption risk,” UBS strategists Stephen Caprio and Matthew Mish wrote in a note to clients, citing data through the end of last year. Mutual funds have increased their holdings by $1.4 trillion since March 2009, exceeding a $1.2 trillion increase in outstanding corporate debt, according to the report.