2014.08.0803:07:47UTC+00Junk bond funds in US post record outflow

Data from Lipper has shown that high yielding bond funds in the United States have achieved an all time record outflow of $7.1 billion this week.

The withdrawal of funds was spurred by the first monthly fall of debt in a year which pushed it down to 1.3% in July and increase the amount of year to date outflows to $9.75 billion. The previous record was achieved back in June 5th, 2013 when $4.6 billion exited the market.

Another $1.5 billion in US funds for leveraged loans was also pulled out to achieve the largest outflow since the week of August 17th, 2011 when $2.5 billion was withdrawn. Loan funds’ net outflows for 2014 now stands at $2.3 billion. Prices for loans today dropped to the lowest since April 28th of 98.07 cents per dollar as shown in the S&P/LStA US Leveraged Loan 100 Index. It recorded its first monthly loss in a year when it fell 0.25% in July and has so far declined by 0.23% this month.

Both high yields bonds and leveraged loans are considered below the investment grade defined as either BBB- by Standard & Poor’s or Baa3 by Moody’s Investors Service.

For investors to choose speculative grade bonds over safer government bonds, the extra spread or yield required grew from 3.35 percentage points last June 23  to 4.2 percentage points today, according to the index of the Bank of America Merrill Lynch.