February 16, 2018 / 12:01 AM / a year ago

UPDATE 1-U.S. 'junk' bond funds hit by 2nd biggest cash withdrawals -Lipper

 (Adds details on funds, table, analyst quote, byline)
    By Trevor Hunnicutt
    NEW YORK, Feb 15 (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 $1.3 billion.
    The following is a breakdown of the flows for the week,
including mutual funds and ETFs:
 Sector                    Flow Chg  Pct of    Assets     Count
                           ($ blns)  Assets    ($ blns)   
 All Equity Funds          -4.561    -0.07     6,856.884  12,161
 -Domestic Equities        -9.221    -0.20     4,660.881  8,665
 -Non-Domestic Equities    4.660     0.21      2,196.004  3,496
 All Taxable Bond Funds    -7.773    -0.30     2,612.733  6,046
 All Money Market Funds    -1.347    -0.05     2,677.130  1,028
 All Municipal Bond Funds  -0.443    -0.11     401.080    1,472
 (Reporting by Trevor Hunnicutt; editing by Jennifer Ablan and
Diane Craft)
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