By sebra @ Shutterstock.com
Investors are running from junk bonds, with spreads widening to the highest levels since 2016, and junk bond funds losing suffering withdrawals of $11 billion over just the last six weeks alone. At Bloomberg, Kelsey Butler reports on the rout:
Pummeled by expectations of slower growth, outflows and dropping oil prices, junk bonds are poised for their worst returns in more than seven years.
High-yield bonds are returning -2.64 percent in December, on track for the worst month since September 2011. The asset class has lost 2.59 percent so far this year, set for the biggest loss since returns fell 4.47 percent in 2015, according to the Bloomberg Barclays High Yield Total Return Index.
“Expectations around global growth are slowing, so fundamentally that impacts credit, most notably in lower rated credits.” said Joel Levington, director of credit research at Bloomberg Intelligence. “Secondly, you have large outflows of cash from ETFs, so technically, the sector has faced pressure as well. Lastly, the B tier is composed with a large amount of energy credits, so the drop in oil prices has an immediate impact there as well.”
Funds that invest in high-yield debt have seen massive outflows as investors have fled risk assets, yanking $11 billion from the funds over the past six weeks, according to Lipper.
As returns have remained negative, high-yield spreads have risen this month to the widest level since the summer of 2016, and yields this week hit the highest level in 32 months. Most big banks see junk bonds having a better year in 2019. Return expectations for the coming year range from 0.5 percent on the bearish end to 6 percent to 7 percent on the bullish side.
Jeremy Jones, CFA
Latest posts by Jeremy Jones, CFA (see all)
- Are Canadian Banks in Trouble? - March 22, 2019
- Fed Delivers a Sucker Punch to Retired Investors - March 21, 2019
- Is This a Generational Opportunity in Foreign Stocks? - March 21, 2019