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Investors Pull $6 Billion From Junk-Bond Funds After Turmoil

Updated on
  • Outflows follow declines in U.S. stocks and junk-bond prices
  • Money managers growing fearful about inflation, rising rates

Junk-Bond Funds Hit With $6 Billion Ouflows

Investors withdrew $6.3 billion from U.S. high-yield junk bond funds in the past week, the second-biggest amount ever, as concern mounted that equity-market volatility was spreading.

The week marked the fifth consecutive week of outflows, bringing the total over that period to more than $15 billion, according to Lipper Fund Flows data which include exchange-traded and mutual funds. That’s the longest consecutive period on record and the biggest weekly outflow since $7.06 billion was withdrawn in August 2014.

The outflows follow the junk-bond market’s worst losses since the oil slump two years ago. A slight rebound for the bonds this week -- high-yield was up less than 0.1 percent through Wednesday as equity markets and oil rallied -- hasn’t stopped investors from pulling their money.

“The narrative is really becoming more about inflation and rate risk creeping into the broad markets,” said Henry Peabody, a money manager at Eaton Vance Corp., with more than $400 billion of assets. “Investors are likely to hit the silk fairly quickly.”

Roller Coaster

Equity investors have been on a roller coaster ride this year amid rising concern that inflation will force interest rates higher. The S&P 500 tumbled more than 10 percent from its Jan. 26 high through the end of last week to meet the accepted definition of a market correction, erasing its gain for the year.

Treasury yields have been climbing in recent days, reaching their highest level on Thursday since January 2014.

Among junk bond funds, high-yield exchange-traded funds were hit hard by redemptions this week. About $760 million has been pulled from BlackRock Inc.’s iShares iBoxx $ High Yield Corporate Bond ETF since last Friday, while investors pulled out $1.15 billion from the second-biggest ETF for the sector, the SPDR Bloomberg Barclays High Yield Bond ETF.

“It’s hard to think of elevated volatility in both rates and equity not eventually seeping into credit,” Peabody said. “Investors are waiting for the markets to settle down.”

In other funds, Lipper reported:

  • U.S. corporate investment-grade funds also saw outflows for the week of $790 million, first weekly outflow from high-grade funds since September
  • U.S. government mortgage funds posted outflows of $182 million
  • U.S. government treasury funds saw continued inflows of $1.33 billion
  • Municipal-bond funds saw outflows of $443 million, breaking streak of five consecutive weekly inflows
  • Loan funds saw a net outflow of $219 million

— With assistance by Rizal Tupaz

(Updates with investor quote from fourth paragraph.)
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