Credit Investors Pull Most From High-Grade Funds Since 2015

(Bloomberg) -- Credit investors yanked cash from investment-grade bond funds for the second straight week in the biggest withdrawal since December 2015.

Investors pulled $5.1 billion from funds that invest in high-grade debt in the week ended May 29, data from Refinitiv’s Lipper show. It’s just the fifth weekly outflow this year, and follows last week’s withdrawal of $756 million after a 16-week stretch of inflows.

High-yield funds also posted outflows with $1.27 billion withdrawn, compared with a small inflow of $4 million in the previous period.

U.S. corporate debt markets have slumped this week amid concerns about global trade. Risk premiums on investment-grade bonds have widened about 7 basis points in the last week to 1.26 percentage points on Wednesday. High-yield debt lost 0.53% in the same period, according to Bloomberg Barclays index data. Exchange-traded funds have also suffered hefty outflows as stock and oil markets retreated.

“Outflows are not surprising considering the general move in risk assets, but new issue has slowed a bit and investors have ample cash so it is not overly concerning,” said Bradley Rogoff, global head of credit strategy at Barclays Plc.

The outflows come at a challenging time for the U.S. investment-grade bond market. Borrowers sidelined themselves this week in the face of big rates swings and investor pushback that has increased borrowing costs. New issue volume is set to significantly miss this week’s estimates that had called for at least $15 billion in new deals.

Earlier Thursday Flex Ltd. was unable to get to the lower end of initial price guidance distributed by dealers, a sign of investor caution that’s been rare so far this year. The electronics manufacturer paid a high concession to sell $450 million of bonds.

Bank of America Corp. analysts said in a report they’ve observed a “notable deceleration” of flows into high-grade bond funds and ETFs since May 14. They cited increased uncertainties in the wake of the escalated U.S.-China trade war and a spike in interest rate volatility as factors. Top money managers at Pacific Investment Management Co. this week called the credit market “probably the riskiest ever” and “the area of most concern for us” in interviews with Bloomberg.

Despite this, total year-to-date returns for investment-grade debt stand at 6.57% as of Thursday, according to data compiled by Bloomberg. And U.S. high-yield returns of 7.73% still top all fixed-income classes.

©2019 Bloomberg L.P.