The appetite for risk seems to have hit the pause button – last week, investors pulled nearly $1 billion out of bond exchange traded funds (ETFs) and mutual funds. It was the largest week of outflows in nearly six years.
Including exchange traded funds, high-yield mutual funds recorded $984 million of outflows last week, says Michael Aneiro for The Wall Street Journal. It was the second consecutive week of outflows, after 22 weeks of inflows.
The influx of cash from yield-hungry investors was about $32 billion in 2009, according to Lipper. This helped spur record amounts of new bond issuance and propelled the junk bond market to a 57.4% return on the year. Now it appears that the complete opposite is happening. [Beware of a Bond ETF Bubble.]
The high-yield market has been in a slump for a month, with risk premiums widening to 6.93% last week, according to the Merrill Lynch Master II High Yield Index.
Many analysts say this is a healthy correction after an abundance of assets and interest flooded the high-yield market. Watch the trend lines for signals of a turnaround. [The Appeal of Junk Bond ETFs.]
For more stories about junk bonds, visit our junk bond category.
- iBoxx $ Liquid High-Yield (NYSEArca: HYG)
- SPDR Barclays Capital High Yield Bond (NYSEArca: JNK)
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.