High yield bonds see outflows despite “strong fundamental case”

Anticipation for higher US interest rates and a stronger dollar were blamed for large outflows from bond funds in the first week of May.

The fund sector saw outflows of $1.16 billion (€975 million), which included over $1 billion from global bond funds, according to EPFR Global.

The firm, which tracks funds with over $31 trillion of assets under management, also said redemptions from emerging market bond funds tracked by the firm hit a 12-week high.

High yield bond funds posted outflows for the 14th time in the 19 weeks year-to-date. Cameron Brandt, research director at EPFR Global, said: “The over $90 billion that flowed into EPFR-tracked US high yield bond funds in the wake of the Great Financial Crisis has been flowed back out – and more besides – even though the performance of the asset class is holding up.”

Brandt said this suggested mutual fund investors see US junk bonds as a “central bank liquidity play” and are “heavily discounting the fundamental case for these bonds which, on the face of it, remains strong”.

One part of the fixed income universe – bank loan funds – saw their inflows hit an eight-week high.

©2018 funds europe

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