The bond market exodus is accelerating

Bond investors are getting nervous.

Bank of America Merrill Lynch’s latest update on the bond market shows that the exodus from investment-grade debt funds is accelerating.

Investors last week pulled billions from funds investing in high-quality bonds issued by US companies, according to the BAML report. More than the previous week.

This rush for the exit comes after panic hit the market for lower-grade, riskier bonds — known as high-yield debt — this month.

The worries seem to have spread from junk to debt issued by companies with high credit ratings, as well as funds that invest in the stock market.

Here’s BAML analyst Ujjwal Pradhan (emphasis ours):

Relative to the prior week, outflows from high grade accelerated to $3.84bn from $2.52bn and from equities to $7.99bn from $4.64bn.

Here’s how that chart looks:

While investors continue to shun high-yield funds, they’re doing so at a more measured rate.

Here’s Pradhan again (emphasis ours)

At the same time, outflows from high yield eased to $1.14bn after outflows of $3.05bn and $3.40bn in the weeks ending December 16 and December 9 respectively.”

The heavy outflow from bond funds — a total of $25 billion in the first three weeks of December — has come in the same month as a Federal Reserve rate hike from 0.25% to 0.5%. It was the first base rate increase since the 2008 global financial crisis.

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