High-yield bond funds have suffered withdrawals for eight of the past 10 weeks, culminating in a $2.2 billion redemption through Aug. 23, according to Bank of America Corp. research. Passive funds have also shrunk, with three straight weeks of outflows for the benchmark iShares iBoxx High-Yield Corporate Bond ETF.
Guggenheim Partners is among those that have cooled on debt issued by firms with weaker balance sheets. The New York-based money manager, whose high-yield fund ranks in the top 10 among almost 700 peers since 2012, is more risk-averse than it’s ever been.
“Our high-yield corporate-bond allocation across our core and multi-credit strategies is now at the lowest level since their inception, and we have reduced our positions in lower-rated bank loans and collateralized obligations,” according to an Aug. 16 strategy note on the Guggenheim Partners website.
That shift showcased the tone of a market that saw the price of Tesla Inc. bonds undercut only a week after they were sold. Elon Musk’s company had priced the debt at a record-low yield for bonds of its rating and maturity amid excitement over the roll-out of the Model 3.
The jury is out on whether investors will come back into the global market now prices are cheaper, said Regina Borromeo, head of international high yield at Brandywine Global Investment Management in London. Borromeo this year pared back allocations to European high-yield bonds in favor of U.S single B credits and emerging markets.
“It’s healthy there’s been a little bit of a pullback,” Borromeo said. “Valuations were at all-time tights, so when you get to those frothy levels you can see investors taking profits.”
This article was provided by Bloomberg News.