U.S.-based high-yield junk bond funds post largest weekly outflow since October

(Reuters) – U.S.-based high-yield junk bond funds posted more than $4 billion of outflows in the week ended Wednesday, the largest weekly cash withdrawals since October 2018, according to Refinitiv’s Lipper data, triggered by an escalating trade war between China and the United States.

Investors scrambled into safer U.S.-based money-market funds, which attracted $64.66 billion in the week ended Wednesday, the fifth largest weekly inflow on record since 1992, Lipper said.

Late Sunday, China let the yuan breach the key 7-per-dollar level for the first time in more than a decade and announced it was stopping its purchases of U.S. agricultural products, halting a global rally which had pushed benchmark indexes in the United States and China up more than 20% for the year to date.

It was the latest salvo in a brewing trade-turned-currency war between the world’s two largest economies.

“Lower rates aren’t good for money market funds, but the flows this week represented a flight to safety,” said Tom Roseen, head of research services at Lipper. “Investors were just looking for a good place to hide.”

Roseen said there were “significant outflows” for equity exchange-traded funds (ETFs) this week at -$22 billion, marking their second-largest weekly outflows on record since 1996.

“Interestingly, despite the 10-year Treasury yield closing at 1.71% yesterday – its lowest closing value since November 4, 2016 – authorized participants and ETF investors were net redeemers of taxable bond ETFs at negative $5.7 billion, with the second-largest net redemption occurring in our government-Treasury macro-group at negative $1.6 billion,” Roseen said.

“Keep in mind that normally there is an inverse relationship between yield and price. The average government-Treasury ETF posted a 1.69% return for the fund-flows week ended August 7, 2019.”