April 25, 2019 / 7:54 PM / 9 months ago

Investors take 'Spring Break' from risk assets, pulling cash from junk-bond funds

(Reuters) - Investors took a break from their buying binge of risk assets in the week ended Wednesday, as U.S.-based high-yield junk bond funds posted $520 million in cash withdrawals, according to Refinitiv’s Lipper research service data on Thursday.

U.S.-based equity mutual funds posted $3.64 billion of cash withdrawals in the week ended Wednesday, extending their weekly outflows since mid-February, Lipper said.

It added that U.S.-based equity exchange-traded funds posted $3.68 billion of cash withdrawals in the week ended Wednesday, marking their first weekly outflow since late March.

U.S.-based domestic equity funds posted over $7.5 billion in net cash outflows in the week ended Wednesday, following two weeks of inflows totaling $9.3 billion, according to Lipper data.

“High-yield funds did suffer net outflows, but the lion’s share of those outflows came from one ETF,” said Pat Keon, senior research analyst at Lipper. He pointed out that the iShares iBoxx $ High Yield Corporate Bond ETF had net outflows of $382 million, which was a major contributor to the latest week’s cash withdrawals.

“This bears watching; I would suspect the negative flows from high yields is more of a one-week aberration than the reversal of the current trend,” Keon said.

High-yield debt correlates more to equities than other taxable bonds - due to having more risk than investment-grade debt, Keon said. “I would expect the recent round of positive data - retail sales data hitting its highest level in 18 months, unemployment claims at its lowest level in almost 50 years, and solid corporate earnings results - should carry the equity markets and pull high yield-debt along for the ride,” Keon said.

Higher up in the quality curve, U.S.-based investment-grade corporate bond funds enjoyed another week of inflows.

For the week ended Wednesday, U.S.-based investment-grade corporate bond funds attracted $5.86 billion of net cash in week ended Wednesday, extending their weekly inflows since mid-January, Lipper data shows. Overall, U.S.-based taxable bond funds attracted roughly $6.4 billion in the week ended Wednesday, their seventh straight week of inflows, Lipper said.

Reporting by Jennifer Ablan; editing by Jonathan Oatis and Tom Brown

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