Investors are Fleeing from Junk Bond ETFs

From ZeroHedge: Earlier this year, investors couldn’t get enough high-yield (junk) bonds. Now it seems the tide has turned, as rising volatility and rates have spurred a mass exodus out of junk bond ETFs.

Easy come, easy go.”

That saying was certainly accurate when it comes to the recent extremely volatile flows in and out of junk bonds. Following weeks of “scramble for yield”, the recent mini tantrum (which may morph into a maxi one yet), has resulted in rising rates and volatility, which in turn has prompted an outflow from high yield US HY funds to the tune of $2.84 billion  (-1.3%) net outflow last week, the first negative print in the last 6 sessions.

According to BofA, last Friday’s jump in volatility and risk-free yields, combined with a 3.6% decline in oil prices, prompted the risk-off outflows which continued into this week. As tends to be the case when a shift in sentiment occurs, HY ETFs responded more quickly and violently with a -$2.54bn (-6.1%) net outflow, compared to the more muted -$296mn (-0.2%) reaction from open-ended funds.

In terms of $AUM, this was the largest ever outflow from ETFs and the first net redemption from open-ended funds in the past 11 weeks, underscoring the fear of a rising rate environment and its negative impact on high yield. Non-US HY also lost money to outflows this past week (-$698mn, – 0.3%), its first in the last 6 sessions.

Outside of high yield, flows were mixed. Although equities (-$1.97bn, -0.0%) and money markets (-$37.6bn, -1.6%) also lost money to inflows, most other asset classes recognized inflows last week: loan funds continued their streak with a $269mn (+0.4%) gain, high grade added $617mn (+0.1%), EM debt gained $113mn (+0.0%), and munis increased their AUM by $319mn (+0.1%). Over the last 5 weeks, money market funds have experienced net withdrawals representing 3.45% of AUM, the most over such a time span in over a year.

Despite the big outflows from junk bond funds, the two largest junk bond ETFs held up just fine over the past week:

  • The iShares iBoxx $ High Yid Corp Bond ETF (NYSE:HYG), which boasts $15.18 billion in assets, closed at $85.91 on Friday, up +0.02 (+0.02%). Year-to-date, HYG has risen 6.61%.
  • The SPDR Barclays Capital High Yield Bond ETF (NYSE:JNK), which has $11.42 billion in AUM, closed at $36.14 on Friday, down $0.03 (-0.08%). Year-to-date, JNK has gained 6.58%.

This article is brought to you courtesy of ZeroHedge.

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