High-Grade Bond Funds Shed $38 Billion, Extending Record Exodus

(Bloomberg) -- U.S. corporate investment-grade funds reported a record $38 billion outflow, extending an unprecedented rout as investors flee for havens assets amid the global market meltdown.

That exceeds the prior record of $35.6 billion set just last week as the selloff from the spreading coronavirus intensified. Fund outflows had been expected to ease after credit markets rallied in line with equities as a $2 trillion relief bill moved its way through Congress, following news that the Federal Reserve would buy corporate bonds. Yield premiums dropped as ETF flows turned positive.

”The flows are not surprising as fear had been the pervasive sentiment,” said Steven Oh global head of credit and fixed-income at PineBridge. “Liquidity preservation was the goal, hence the outflows.”

Strong signs have emerged in the past two days, though, that demand is rebounding for corporate bonds as policymakers respond to the rapidly deteriorating economic data with unprecedented stimulus.

High-grade corporate debt issuers are set to sell the most bonds ever in a week. Companies announced $35.5 billion worth of new debt sales today, bringing this week’s tally to $98.4 billion, according to data compiled by Bloomberg. That far outstrips the prior weekly record of $74.9 billion in the first week of September.

The $36 billion iShares iBoxx $ Investment Grade Corporate Bond ETF -- the biggest of its kind for high-grade credit -- saw record inflows over the last week. Tuesday’s $1.5 billion net gain was the biggest ever and took the total for the March 17-25 period above $6.2 billion.

Muni, Junk Cash Flees

Investors also pulled a record $13.7 billion out of municipal-bond mutual funds in the week ended Wednesday, surpassing the record $12.2 billion exodus a week earlier, as the market reeled from its biggest losses in at least four decades.

Funds that buy junk bonds lost $2 billion in the five business days ended March 25, while leveraged loan investors also withdrew about $2.1 billion. That compared to a $2.9 billion outflow from high-yield bond funds in the five business days ended March 18, and about $3.5 billion out of leveraged loans.

Junk bonds and leveraged loans also rebounded slightly in recent days, with an index for loans rising the most in a single day since the financial crisis on Wednesday.

This week’s withdrawals of more than $42 billion beat last week’s $41.9 billion total outflow from all types of bonds and loans, making it the largest ever, according to data compiled by Bloomberg. The previous three weeks had each set records for total outflows from U.S. credit funds. Before last week, the highest net withdrawal ever from high-grade funds was $7.3 billion.

“There’s a lot of momentum around the Fed facilities and the stimulus bill, but that doesn’t take away all of the negative numbers that are yet to come,” said Erin Lyons, U.S. credit strategist at CreditSights in a telephone interview. “We are OK for another week or two but then we could see some more selling as more of the economic data and earnings numbers start to come out.”

A record $345 billion poured into U.S. government money-market funds over the past week as investors continued to seek refuge in high-quality, liquid assets amid historic market mayhem. Total assets rose to an all-time high of $3.44 trillion in the week ended March 25, according to Investment Company Institute data that stretches back to 2007.

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