US high-yield funds report $4.04B outflow in largest exit since March 2021

U.S. high-yield retail funds reported outflows totaling $4.04 billion for the week to Feb. 2, marking a fourth straight heavy outflow, according to data from Lipper. It was the largest redemption over a single week since a $5.33 billion outflow over the week ended March 10, 2021, also as inflation fears wracked global risk sentiment.

The latest outflow comes after $2.81 billion exited the funds over the previous week and after outflows totaled $2.14 billion for the week ended Jan. 19 and $2.24 billion for the week to Jan. 12. The four-week average, at negative $2.81 billion through Feb. 2, reflects the heaviest outflows for a comparable period since the onset of the global pandemic in March 2020.

Redemptions hit both major fund categories for a fourth straight week. Mutual funds reported $1.03 billion of outflows for the latest week, while $3.02 billion exited U.S. high yield exchange-traded funds, according to Lipper. The mutual fund outflow comes after $2.62 billion exited the category over the previous week, while the latest ETF outflow was the largest since that March 10, 2021, period.

The heavy redemptions thus far in 2022 follow on $13.03 billion of net outflows from all high-yield retail funds last year in an ongoing reversal from $38.3 billion of inflows in 2020.

Assets at the weekly reporters to Lipper stood at $270.9 billion as of Feb. 2, $72.6 billion of which is at ETFs, or 27%. For reference, those assets totaled $282.4 billion at Dec. 29, 2021, including more than $81 billion at ETFs, or 29%.

The markets moved against the pool of assets for a fifth straight week in 2022. The change due to market conditions was negative $98.1 million for the latest week, versus a negative change of $1.94 billion over the previous week. Note that the latest observation period does not capture a broad sell-off in risk assets this morning post the Bank of England's half-point hike in interest rates in the face of torrid inflation.

For reference, the average bid for LCD's 15-bond sample of liquid high-yield issues declined 65 basis points for the week to Feb. 3, to 100.07% of par, marking a fifth consecutive decline to kick off 2022, totaling 385 bps so far in 2022, from 103.92 at the final reading of 2021. It is down from 104.49 at the first reading of the fourth quarter last year.

As well, the price for the broader S&P U.S. High Yield Corporate Bond Index was 50 bps lower week over week at the Feb. 2 close, at 101.10. The interim low at 100.52, on Jan. 28, was a low for the index since September 2020. The 5.02% yield to worst and T+335 option-adjusted spread for the index Feb. 2 compared with 4.88% and T+318 a week earlier and 4.22% and T+299 at the end of 2021.

As of Jan. 28, those metrics stood at 5.23% — a high since November 2020 — and T+358, or the widest spread since the opening sessions of 2021.