Cash Drains From Junk-Bond Funds at Fastest Pace in Two Months

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  • Withdrawals come as end of stimulus meets growth concern
  • Aberdeen manager looks past buoyant cycle ‘into next problem’

Alan Ruskin Sees Stimulus Boosting Bond Yields

Investors are draining cash from junk-bond funds at the fastest pace in eight weeks as doubts emerge over a risk rally that’s compressed yields to record lows.

Funds that buy bonds of companies with relatively fragile balance sheets had $600 million in withdrawals in the seven-day period through Nov. 9, according to a Bank of America Merrill Lynch report citing EPFR Global data. The trend is borne out by Lipper U.S. Fund Flows data, which shows investors yanking cash out of the U.S. junk-bond market for two consecutive weeks.

High-yield corporate debt has been one of the biggest beneficiaries of central-bank stimulus, which has squeezed spreads in better-quality bonds, forcing investors to seek returns elsewhere. Now the market is losing its biggest buttresses as the Federal Reserve raises interest rates and the European Central Bank gets set to curtail its bond-buying program. Higher-risk assets, such as stocks, are also faltering as much-vaunted U.S. tax cuts face delays.

“You’re not getting paid an awful lot for default risk, as an investor you have to be very, very careful,” Luke Hickmore, senior investment manager at Standard Life Aberdeen Plc in Edinburgh said in an interview with Bloomberg TV Thursday. “Value in credit markets is getting harder and harder to find if you’re looking past the last bit of this growth session into the next problem.”

Junk funds were an outlier in an otherwise positive week for fund flows, with bond funds adding $6.5 billion and equity portfolios drawing $3.9 billion, according to the Bank of America report.

— With assistance by Eliza Ronalds-Hannon

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