March 9, 2017 / 10:25 PM / 9 months ago

Investors cash out of U.S.-based junk bond funds

NEW YORK (Reuters) - Investors are spurning U.S.-based high-yield junk bond funds, Lipper data showed on Thursday, as they keep gobbling up stocks and other risky assets.

High-yield bond funds posted $2.1 billion in net withdrawals during the week ended March 8, the most since November 2016, the data showed.

The flight from lower-grade corporate debt follows strong performance in the asset class that suggests sharply reduced expectations of default.

That performance, reflected in tight spreads between the yields investors demand on junk bonds and those on lower-risk offerings, could be challenged ahead of next week’s U.S. Federal Reserve’s policy-setting meeting after a sharp oil sell-off.

Crude fell this week to prices not seen since a pact led by the Organization of the Petroleum Exporting Countries (OPEC) to cut production was agreed as record U.S. inventories fed doubts about the effectiveness of the deal to curb a global glut.

Energy producers are heavily represented in junk bond indexes.

Monetary policymakers have telegraphed that they may raise interest rates, which could shrink bond prices and hike borrowing costs for indebted companies.

Neither of those possibilities are shaking the broader market.

Stocks, which are seen as closely linked to high-yield performance over longer stretches, remain popular with fund investors.

U.S.-based stock funds attracted their sixth straight week of net inflows, $8.5 billion, while taxable bond funds netted $2.8 billion despite the high-yield outflows, the research service’s data showed. Energy sector stock funds pulled in $170 million.

Precious metals commodities funds, which invest in non-yielding gold, posted $514 million in net outflows, the most since December.

“There’s a lot of pent-up demand and now investor enthusiasm,” said Pat Keon, senior research analyst for Thomson Reuters Lipper.

U.S.-based stock funds that invest outside of the country attracted $3 billion, their largest net inflow in close to a year, as investors pursued bargains abroad. European stock funds took in $351 million, the largest net inflow since January 2016.

Demand for assets that profit from rising rates helped loan participation funds attract $1.2 billion, extending a streak of inflows that has lasted the entire year. The funds invest in bonds that hike their payouts as rates rise.

The following is a broad breakdown of the flows for the week, including mutual funds and exchange-traded funds:

Sector Flow Chg % Assets Assets Count

($blns) ($blns)

All Equity Funds 8.529 0.15 5,694.378 11,699

Domestic Equities 5.488 0.13 4,080.513 8,357

Non-Domestic Equities 3.041 0.19 1,613.865 3,342

All Taxable Bond Funds 2.821 0.12 2,352.210 5,917

All Money Market Funds 11.795 0.47 2,533.597 1,014

All Municipal Bond Funds -0.073 -0.02 370.429 1,407

Reporting by Trevor Hunnicutt; Editing by Jennifer Ablan and Richard Chang

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