Speculative-grade debt was shunned by investors last week with new data showing that high-yield bond funds saw their largest outflows for over a year.
A report from Bank of America Merrill Lynch on Friday showed $4.8 billion was dumped from these global funds in the week ending Wednesday July 23, the most seen since June 2013. It also noted that high-quality fixed income had seen 31 straight weeks of inflows which it warned was at risk of being overcrowded.
High-yield bonds, otherwise known as speculative grade or junk debt are bonds issued by companies that carry a rating of 'BB' or lower from Standard & Poor's or 'Ba' or below from Moody's. They have a higher risk of default compared to investment-grade debt but give a better return for investors as yields are higher.
Many analysts believe that yield-hungry investors have flooded money into the space with record low interest rates at central banks causing high-quality bonds to become less attractive. U.S. fund tracker Lipper also stated on Friday that its own high yield funds classification had a second consecutive week of net outflows with almost $2.0 billion pulled in two weeks.