Junk Bonds Set for Worst Month in Two Years on China Concerns

Global high-yield corporate bonds are headed for the worst month since June 2013, as China’s cooling economy and gyrating stock market deter risky investments worldwide.

Junk bonds returned negative 2 percent through Thursday, cutting gains for the year to 0.9 percent, according to a Bank of America Merrill Lynch index. Investment-grade bonds have lost 0.6 percent this month, causing a 0.4 percent loss for the year.

Investors pulled $4.9 billion from high-yield bond funds in the week ended Aug. 26, the most this year, according to Bank of America Merrill Lynch, amid a global selloff of assets sparked by a rout in Chinese equities. Weekly investment-grade bond outflows totaled $3.8 billion, the most since June 2013.

“We see this as a growth issue rather than solvency, and more specifically Chinese growth impacting risk appetite globally,” said Chris Bowie, a London-based portfolio manager at Twentyfour Asset Management, which oversees 4.9 billion pounds ($7.5 billion). “August is notoriously illiquid which can mean bigger price swings when there is market-moving news.”

Global stocks have lost more than $6 trillion dollars of value since China devalued the yuan on Aug. 11 in a bid to revive exports and economic growth.

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