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There are signs that retail investors are getting increasingly nervous about high-yield bonds, according fund flows data from Bank of America Merrill Lynch.
The survey shows that investors pulled $2.7bn from high-yield bond funds last week, the largest weekly outflow for the sector since August 2013, bringing to an end 30 straight weeks of inflows to high yield bond funds.
“Recently it has been all about safety over yield and credit over equities,” analysts at BOFA told the Financial Times. These flows patterns reveal a switch of preference into high-safety markets.
The outflows come following a strong rally this year in junk bonds – which pushed average yields on high yield debt to a record low of 4.8 per cent last month.
Risk aversion has increased this week in response to comments made by Fed Chair Janet Yellen, who warned Congress that if jobs growth continues at its current rapid pace, interest rate rises could come earlier than expected.
Investors were also spooked following yesterdays news that a Malaysian Airliner had been shot down in Ukraine and an escalation in tensions in the Middle East after Israel’s decision to send ground troops into the Gaza Strip.
Todays Other Top Stories
LearnBonds: – General Electric: Buy this transformed industrial giant. – Are GE’s glory days back? Well, maybe not, but under the 13-year leadership of CEO Jeff Immelt – who succeeded the legendary Jack Welch – the company’s business portfolio has been reshaped, guided by a philosophy that stresses innovation, globalization and growth over broad diversification and process orthodoxy.
S&P Capital IQ: – Largest withdrawal in 11 months: Retail-cash outflows from high yield bond funds balloon. – Retail-cash outflows from high-yield funds totaled $1.68 billion in the week ended July 16, with an outflow of $613 million from mutual funds expanded upon by an outflow of $1.1 billion from exchange-traded funds, according to Lipper. The ETF influence was roughly 63% of the total withdrawal.
MarketWatch: – Fitch takes various rating actions on enhanced municipal bonds and TOBs. – Fitch Ratings has taken various conforming rating actions on enhanced municipal bonds and tender option bonds (TOBs) corresponding to actions taken on their associated enhancement providers or underlying bonds.
MarketWatch: – How to use muni bonds in your retirement portfolio. – With all the renewed interest in fixed-income in 2014, muni bonds have largely flown under the radar. Returns from most states have fallen right in the middle of the pack when compared with Treasury or investment-grade corporate securities.Yet on a relative basis, muni bonds are beginning to exhibit signs of rich valuations.
Bloomberg: – In bond market musical chairs, be ready for bids halting. – Wall Street’s largest bond dealers cut their net junk-bond holdings to $4.8 billion in the week ended July 9, the lowest level since the Federal Reserve began reporting the data in April 2013. While credit still shows signs of froth — with new funds to buy junk-rated loans popping up left and right — investors are increasingly anxious about when the market will turn.
Bloomberg: – Treasuries fall first time in 3 days as Ukraine tension eases. – Treasuries fell for the first time in three days, with benchmark 10-year yields rising from a seven-week low, as haven demand ebbed a day after a Malaysian airliner was shot down over Ukraine.
Jeffrey Rosen: – A case for an overvalued Treasury market. – According to the Treasury market, economic growth is expected to stay weak and will fail to reach escape velocity over the next five to ten years.
High Yield Bonds
IFR: – Losses, outflows dog U.S. high-yield bond market. – The US high-yield bond market saw one of its most volatile days of the year Thursday, as the CDX index dropped almost a point on news of the Malaysian airliner brought down over Ukraine.
Bloomberg: – High yield trailing U.S. stocks brings caution: Chart of the day. – Investors are failing to show the kind of demand for riskier U.S. bonds that they are exhibiting for stocks, according to J.C. Parets, founder and president of Eagle Bay Capital LLC.
Businessweek: – Bond traders plot response as safeguards vanish. – Junk bond investors have had enough of borrowers in Europe eroding safeguards as sales of the high-yield, high-risk debt surge to a record $110 billion.
Market Realist: – Energy, broadcasting firms increase junk-rated debt issuance. – Both new issue volumes and the number of deals were higher in the U.S. high-yield primary market for the week ending July 11. New issue volumes came in at $6.78 billion, over 11 deals, compared to $4.79 billion in eight transactions in the week ending July 4. Issuers were primarily taking recourse to the debt market for financing acquisitions, refinancing older debt, and general corporate purposes.
ETF Trends: – ETF chart of the day: High yield help. – High Yield Corporate Bonds have had a tough week and it has rippled through some of the largest ETFs in the segment. HYG (iShares iBoxx $ High Yield Corporate Bond, Expense Ratio 0.50%) has seen more than $700 million leave the fund via redemptions on heavier than average trading volume, with the fund clipping its 50 day MA on Wednesday and failing to recover since.
Businessweek: – Yield-hungry investors gobble up junk bonds. – After five and a half years of the Federal Reserve keeping short-term interest rates near zero, investors say they have no choice but to seek ever-riskier securities to generate any type of return.
Nanette Abuhoff Jacobson: – Avoid the rearview mirror. – Despite this, most asset classes managed to deliver positive returns, with European and emerging-market equities performing especially well. Investors should stay focused on the road ahead rather than what’s already passed.
Dividend Channel: – Frank Bifulco’s top picks from the retiree income portfolio. – Frank Bifulco picks 7 stocks perfect for any retirees income portfolio.
Fox Business: – Bond mutual funds draw more dollars this year despite warning calls from analysts. – Investors are continuing to pour money into bond mutual funds despite the warnings from Wall Street. So far, those investors have looked smart for doing so. Bond funds have delivered solid returns despite dour predictions.
Gross: Fed Mins in past mons have cited geopolitical events may impact decisions @ margin. 1 reason why ylds decline. German Bunds the other
— PIMCO (@PIMCO) July 18, 2014
1-Year ahead inflation exp 3.3%, a recent high but 5-Year dips to 2.6%, a recent low
— Ed Bradford (@Fullcarry) July 18, 2014
Bbg: *U.S. TREASURY ASKS DEALERS IF IT SHOULD SELL BONDS ABOVE 30 YRS – got to feed the ducks when they’re quacking.
— Five Minute Macro (@5_min_macro) July 18, 2014