Investors are pulling away from high-yield, speculative-grade debt and related exchange traded funds as more focus on safety over income generation.
According to the Bank of America Merrill Lynch, investors have redeemed $2.7 billion from high-yield bond funds, the largest weekly outflow for the sector since August 2013, reports Andrew Bolger for Financial Times.
The iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) and SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) both fell about 0.9% over the past week. HYG has a 4.25% 30-day SEC yield and JNK has a 4.73% 30-day SEC yield. [Bond ETFs: Risks in High-Yield Rewards]
“Recently it has been all about safety over yield and credit over equities,” analysts at BOFA said in the article, pointing to flows data that reveal investors heading toward high-safety markets.
High-grade bond fund flows have been on the rise. So far this year, investment-grade ETF inflows have increased five times that of high-yield ETFs.
Over the past week, the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) is up 0.6% and Vanguard Intermediate-Term Corporate Bond ETF (NYSEArca: VCIT) is 0.4% higher. LQD has a 3.1% 30-day SEC yield and VCIT has a 3.07% 30-day SEC yield. [Demand Favors Corporate Bond ETFs]
Investors are growing anxious over riskier debt after Federal Reserve chairwoman Janet Yellen warned about a sooner-than-anticipated rate hike. Additionally, geopolitical risk, notably a downed Malaysian Airliner in Ukraine and Israel’s push into the Gaza strip, have made more investor risk adverse.