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What goes up comes crashing down: Bonds in the doghouse (Part 2)

High yield bonds (JNK) are also in the doghouse

US High Yield Bond Fund Flows 2013-08-06Enlarge Graph

High yield fund flows reversed significantly last week after two strong weeks leading up to the FOMC (Federal Open Market Committee) meeting. The question now is whether these outflows were temporary caution prior to the meeting, or if investors have packed up and left for sure.

High yield (HYG) fund flows are useful gauges of investor sentiment, and while they’re lagging momentum indicators, they’re key to highlight changes in investor sentiment.

Fund flows take a U-turn

Last week, the high yield fund flows dropped $1.03 billion, which was a sharp change of tone compared to the $6 billion inflows over the previous two weeks. The outflow was the first in four weeks and represents a strong signal from investors.

Year-to-date, net outflows have totaled $4.4 billion—though given the large positive and negative swings we’ve seen in recent weeks, this figure has lost relevance. We could be back in positive territory within a month, though more likely we’ll be farther in the red.

The leveraged loan market (BKLN) saw reduced inflows versus the previous week but is still positive

Continue to Part 3