U.S. Junk Bond Funds Experience Biggest Withdrawals Since December: Lipper Report by Reuters

By Trevor Hunnicutt

NEW YORK (Reuters) – For the week ending August 3, investors reduced their exposure to higher-risk assets, pulling $2.5 billion from high-yield bond funds—the largest weekly withdrawal since a significant selloff in December.

These withdrawals highlight how declining oil prices and profit-taking are beginning to impact riskier markets, even as investors seek financial assets with attractive yields, particularly in emerging markets.

Several oil benchmarks entered bear market territory in late July, suffering their worst monthly loss in a year, although prices have experienced a slight rebound since then.

Despite the challenges in the oil sector, junk bond indexes that are heavily influenced by energy remain resilient. These bonds have been on an upswing since oil prices hit a more than 10-year low in February.

"You see money going on the sidelines, waiting to see how things are going to shake out," noted Pat Keon, a research analyst for Thomson Reuters Lipper.

The recent fund outflows represent the largest decline in junk debt since the week ending December 16, when those funds experienced $3.8 billion in outflows due to the turmoil in oil markets. During that period, the average junk fund’s bonds declined by more than 1 percent for two consecutive weeks, according to Lipper data.

U.S.-based stock funds experienced overall withdrawals totaling $3.6 billion in the latest week. Additionally, energy sector stock funds saw their largest withdrawals since December, totaling $470 million.

In contrast, low-risk assets attracted new investment. Money market funds in the U.S. saw an influx of $3.8 billion, while funds focused on gold and other precious metals attracted $838 million, according to Lipper.

Emerging markets, however, remained a target for investment, with $1.8 billion flowing into stock funds dedicated to those economies and $613 million into emerging market debt funds. These investments are considered appealing as investors believe the stocks are undervalued and the debt offers a rare opportunity for higher yields amid globally lowered interest rates.

Investment-grade bond funds attracted $2.5 billion, marking their fifth consecutive week of inflows. Overall, U.S.-based taxable bond funds experienced $96 million in outflows during the same period, marking their first net withdrawals since June.