Record Exodus From Credit Funds Outpaces Flight From Stocks

(Bloomberg) -- Nervous money managers fled from corporate bonds like never before in an exodus that outpaced stocks.

Record outflows hit funds that buy investment-grade debt from the likes of Apple Inc. and Ford Motor Co., according to Bank of America Corp. strategists citing EPFR Global data. The redemptions totaled $7.5 billion in the week through Oct. 10.

By comparison, investors pulled $1.4 billion from equity portfolios during the period, while government and Treasuries actually saw inflows, according to the data which takes a snapshot of the ETF and mutual fund landscape. High-grade bond gauges have also suffered the steepest losses of all the Bloomberg Barclays indexes in this month’s market meltdown.

While the expanding economy is feeding healthy corporate earnings, money managers are re-adjusting their exposures to investment-grade company debt, an asset class acutely sensitive to interest-rate risk as the Federal Reserve pushes ahead with its monetary-tightening plan. Duration, a measure of rate risk, is almost seven years in Bank of America’s main index for U.S. company debt. That compares with six years for the Bank of America U.S. Broad Market benchmark.

Funds that buy junk-rated bonds lost $6.1 billion, the most since February, according to the report.

By contrast, U.S. leveraged-loan funds drew inflows for a 14th straight week, attracting $479 million in new money over the five sessions to Oct. 10, according to data from Lipper.

To contact the reporter on this story: Cecile Gutscher in London at cgutscher@bloomberg.net

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Joanna Ossinger, Sid Verma

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