Investors Yank Money From Junk-Bond ETFs as U.S. Shutdown Looms

(Bloomberg) -- Investors are withdrawing from the biggest high-yield bond exchange-traded funds in the face of higher rates and concern over a potential U.S. government shutdown.

About $568 million was pulled from BlackRock Inc.’s iShares iBoxx $ High Yield Corporate Bond ETF on Thursday, the most since June, increasing outflows for the past seven trading days to almost $2 billion. Money is also coming out of the second-biggest ETF for the sector, the SPDR Bloomberg Barclays High Yield Bond ETF, which has lost $1.6 billion in eight days.

Enthusiasm for the riskier debt ETFs has waned as U.S. Treasury yields climbed to a more than three-year high Friday amid concern over a potential U.S. government shutdown at midnight Friday. Investors have been monitoring attempts to reach an agreement in Congress to avoid a closure of Federal offices and services.

Investors Yank Money From Junk-Bond ETFs as U.S. Shutdown Looms

“Treasury yields are going up, some investors have been rotating into higher quality investment-grade bonds,” said Alfred Lee, an ETF portfolio manager at Bank of Montreal’s BMO Global Asset Management unit. “If Treasuries are paying a bit more, then investors can reduce risk.”

Withdrawals could also be motivated by investors taking profit as credit spreads remain near the lowest level since the Great Recession, Lee said. Junk-bond funds saw an outflow of about $3.1 billion for the week ended Jan. 17, according to Lipper Fund Flows data.

High-yield bond spreads are expected to remain narrow even if a government shutdown occurs, according to junk-bond investors. Robust global economic growth and low default rates have pushed credit spreads to their lowest level since 2007 and kept demand for new issues buoyant even as concerns about the age of the credit cycle persist.

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