People won’t stop talking about high-yield bonds, and this chart from Alain Bokobza and his team at Societe Generale shows exactly why: high-yield investors are now running for the exits.
In The Wall Street Journal this weekend, Katy Burne noted that high-yield investors are growing increasingly anxious about exiting their positions if the market continues to turn against them and investors continue to pull money from high-yield bond funds.
Citing data from Lipper, Burne said more than $US5 billion was pulled from junk-bond mutual funds in July.
Last week we highlighted this chart from Dave Lutz at JonesTrading, which shows the recent divergence between the S&P 500 and high-yield, or “junk” bonds.
High-yield, or “junk” bonds, are bonds that receive a ‘BB’ or lower rating from S&P or a ‘Ba’ or lower rating from Moody’s, are bonds issued by companies, municipalities, or governments that are deemed to contain substantial risk of default.
This chart from the Federal Reserve Bank of St. Louis shows how strong high-yield bonds have performed over the last few years. Keep in mind that the lower a bond’s yield, the “stronger” it is said to be performing.
But the recent spike in junk bond yields has investors second-guessing their exposure to this asset class.
“Everyone is hoping to be first through the exit,” Matt King, global head of credit strategy at Citigroup told Burne. “By definition, that’s not possible.”
It might be a quiet week for economic data, but for markets growing increasingly anxious this week is unlikely to be a snoozer.
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