Investors in bonds and loans have been heading for the exits.
They pulled billions from the debt markets in the week the US Federal Reserve raised interest rates for the first time since the 2008 financial crisis, according to a report from Bank of America Merrill Lynch.
BAML analysts, led by Michael Hartnett, called it “carnage.” Bond funds saw $13 billion (£9 billion) in outflows this week, the most since June 2013.
It was even worse for funds that invest in bank loans — they had their worst week since 2011.
Here’s the chart:
Riskier bonds, known as high-yield bonds because of the enormous interest payments, continued their losing run. Here’s BAML (emphasis ours):
US HY recorded -$3.05bn (-1.50%) net outflows last week, their 2nd consecutive $3bn and -1.5% outflow. In the past 10 years, US HY has suffered consecutive losses of this magnitude 4 times, the last occurrence being June 2013.
The near-$2 trillion (£1.32 trillion) market for risky high-yield bonds has imploded this month and taken a few funds with it.
On Monday, Lucidus Capital Partners liquidated its entire portfolio to return the $900 million it had under management to investors, and last week closure of the Third Avenue Focused Credit fund spooked the market.