The amount of money withdrawn from junk bond funds in 2018 hit a record, because the market is looking at bad economic outlook and the collapse of oil prices has prompted investors to redeem funds from risky assets.
Financial Times reported that according to the fund tracking company EPFR Global, the total outflow of US high-yield bond funds in 2018 will exceed $60 billion, twice the amount of withdrawal last year, when doubts related to credit quality and interest rate hikes began to emerge.
The amount of US high-yield bond funds flowed out of US high-yield bond funds this year was also twice the amount of redemption in 2014, and oil prices suffered a heavy drop that year. The junk bonds issued by energy companies account for about 15% of the flow of junk bonds, so the 20% drop in oil prices this year also impacts investors' appetite for junk bonds for energy companies.
The factors that impact the junk bond market are usually the same as those that impact the stock market. U.S. stocks have written this year the worst full-year performance since the financial crisis, as markets worry that corporate profit growth has peaked and that the trade war could curb the global economy. But other factors that scare investors include concerns about the scale of U.S. corporate stake financing, and interest rate hikes may also erode the high-yield relative value provided by junk bonds. "There are many factors that drive people to remove risks in the credit field, which will impact the high-yield investment field." Cameron Brandt, head of research at
EPFR Global, said: "There are large-scale outflows. The market has basically been worried about the decline in overall credit quality during this period."
0 Financial Times pointed out that the US $60 billion outflow figure ended December 26 in 2018 may still change before the end of the year because some investment foundations only return their capital flows after the end of the year. In addition, EPFR data was first tracked until 2003, when the assets of investing in junk bond funds were very small.
The high-yield bond market benefited from the financial crisis, when central banks in various countries lowered interest rates to historical lows, and companies took the opportunity to issue large amounts of low-financing bonds, and investors who were eager for higher returns were attracted by this type of high-yield asset class. This has caused the circulation value of high-yield bonds to expand significantly from $689 billion at the end of 2007, reaching a peak of $1.4 trillion in 2015, with the current total circulation amount of $1.2 trillion.
Large amounts of money flowing in and out of the junk bond market have become more common, but some investors are worried about whether the market has the ability to withdraw funds from funds due to larger scale, which must sell bonds to meet investors' redemption actions.
However, the maximum decline in transactions by large banks has made it more difficult for these banks to buy and sell bonds, so many traders turn to investing in ETFs.
Bland said: "People currently attach great importance to liquidity when they appear. If investors have to withdraw from an asset class within a very short time, can they (funds) sell quickly to redeemed?" The price of
bonds fell slightly in 2018. According to the index of Ice Data Services tracking high-yield bonds, junk bonds lost 2.8% in a year, compared with the US stock S&P 500 index 's decline in the past year.
Changes in fund flows of US high-yield bond funds. (Source: EPFR Global)
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