NEW YORK (Reuters) - U.S. fund investors fled the riskier corners of the debt market, pulling the second-highest amount of cash on record from high-yield “junk” bonds during the latest week, Lipper data showed on Thursday.
The $6.3 billion in withdrawals from the funds during the week ended Feb. 14 mark a new sign that investors remain wary even as stocks have recovered a bit from a stomach-turning correction that pulled the S&P 500 down nearly 12 percent in just 10 trading days starting Jan. 29.
High-yield outflows this year now stand at $13.7 billion.
Stocks and high-yield bonds often trade in sympathy with one another, and high-yield bonds are sometimes seen as an indicator of what stocks will do next.
The mood around equities improved this week, with outflows of $4.6 billion, compared to a record $23.9 billion in withdrawals the week prior, Lipper said.
Still, inflationary pressures and the prospect of rising interest rates kept investors on edge.
U.S. consumer prices rose more than expected in January, according to data on Wednesday, putting pressure on bonds whose value is eroded by inflation and the policy rate hikes it could engender. Meanwhile, retail sales posted their largest decline since February 2017, according to data released the same day, pointing to weaker economic growth than expected.
Tom Roseen, the head of research services for Lipper, said stronger equities usually bode well for high-yield bonds but higher interest rates and mixed economic news is starting to spook the market.
“People are worried about inflation,” he said.
“We’re going to have volatility that pops around.”
Investors want to see a higher yield to compensate for increased uncertainty, according to Roseen.
Across the board, bond flows showed risk-averse sentiment.
In the most recent week alone, $1 billion exited emerging market debt funds and $790 million flowed out of corporate investment-grade bond funds. In both cases, this was the largest outflows since November 2016.
Treasury funds, however, invested in safer government debt, taking in $1.3 billion.
Reporting by Trevor Hunnicutt; editing by Jennifer Ablan and Diane Craft