Eighth Week of Europe Corporate-Debt Outflows Shows Limits of QE

Investors pulled money out of European corporate bond funds for an eighth week, as concerns about global growth outweigh efforts by the region’s central bank to boost investment through quantitative easing.

More than $1.2 billion was withdrawn from speculative-grade funds in the week ended Jan. 27, according to a Bank of America Corp. note to clients, citing EPFR Global data. Investors took $3.5 billion from investment-grade funds.

The European Central Bank’s purchases of sovereign debt are no longer driving investors into higher-yielding corporate bonds because China’s slowdown and low commodity prices have sapped appetite for risk. The Frankfurt-based institution will review the 1.5 trillion-euro ($1.6 trillion) annual asset-purchase program at a March 10 meeting.

“It’s obviously not working,” said Barnaby Martin, a European credit strategist at Bank of America. “We have had an outflow problem in European credit for a number of months now.”

Investors have withdrawn $5.4 billion from corporate bond funds in Europe this year. EPFR Global tracks $217 billion of high-yield bond funds in Europe, Bank of America said by e-mail. Globally $600 million was taken from investment-grade funds.

The average yield on corporate junk bonds in euros was 6.15 percent on Thursday, up from 4.02 percent at the end of February, according to Bank of America Merrill Lynch index data. The notes have lost 1.4 percent this year, on a total-return basis, following a 2.4 percent loss in December.

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