Junk bond funds post third biggest outflow ever

DUBLIN: Investors pulled about US$6.8bil from high-yield bond funds last week, the third-biggest outflow on record, as investor jitters about the sustainability of yields at multi-year lows caused a selloff in risk assets.

Emerging-market bond funds lost US$100mil, their biggest outflow in 42 weeks, Bank of America Merrill Lynch said in a research note, citing EPFR Global fund flow data.

Portfolios holding Treasuries benefited from the pullback from risky assets, recording their first inflows in nine weeks.

The selloff that had put US high-yield debt on course for its worst week since March showed signs of abating yesterday as investors used the pick-up in yields as a buying opportunity.

BlackRock Inc money manager Rupert Harrison said the worst is probably over because the rout wasn’t driven by fundamentals.

“We were due a correction like this,” Harrison said in an interview on Bloomberg TV on Thursday. Risk assets “have been doing extremely well and we were due some profit taking. I’m not sur- prised to see a bounce-back.”

Still, the redemptions were large enough to spark the first overall outflow from bond funds in 35 weeks. In contrast equity portfolios added US$3.2bil, with tech funds recording their second-biggest ever inflow.

Investors poured US$2bil into Japanese equity funds, fully reversing recent outflows, even as the country’s stock market suffered a four-day slump.

US equity portfolios posted US$1bil of inflows, while a similar amount was pulled from European equity funds.

Elsewhere, investment-grade bond portfolios gained US$4.8bil of new money, a 47th straight week of inflows. Gold funds lost US$200mil.