Investors Yank Most Cash From High-Grade Bond Funds in 18 Months

(Bloomberg) -- Investors pulled $2.54 billion from investment-grade bond funds for the week ended Oct. 6, marking the biggest withdrawal since April 2020, data from Refinitiv Lipper show. That compares to $3.1 billion added during the prior reporting period and follows eight weeks of inflows. 

Macro market volatility walloped markets over the past week as the debt-ceiling stalemate in Washington and concerns around inflation weighed on investor sentiment. Credit risk gauges flared on several days during the reporting period and 10-year Treasury yields rose to the highest in more than three months.

Junk-bond funds also faced withdrawals, with investors pulling $294 million, the data show. In the prior week, investors added $196 million.

The outflows follow a bad month of total returns for high-grade credit that came as Treasury yields rose. The Bloomberg U.S. Investment Grade Index in September suffered its worst monthly total return since March, posting a 1.05% loss. 

Investment-grade debt has a much higher duration -- a measure of sensitivity of a bond’s price to interest-rate changes -- than junk bonds. 

For most of the year, a wall of cash has been chasing high-grade debt. Weekly inflows have greatly outnumbered outflows, 37 weeks to three, in 2021. 

The highest-rated borrowers are still selling new debt in the primary markets without hiccups. On Wednesday, PepsiCo Inc. saw order books more than three times covered for its $3 billion bond sale amid a weaker macro market. 

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