US bond funds hit by record withdrawal

Rattles in US high yield bond market is just making investors jittery, which led to record wave of withdrawals from bond mutual funds and exchange traded funds. According to Lipper data, latest weekly withdrawals from the bond market is largest since 1992, time when the company started tracking flow.

Several funds, namely Third Avenue, Lucius, Stone Lion credit fund have either barred withdrawal by investors or liquidate their portfolio and returned the money. Average yield on US hybrid bond market ticked up higher than 8%, while for energy debt it has reached close to 14%. Now that weakness might be spreading to investment grade market too.

Investors have withdrew $5.1 billion last week from investment grade portfolio for the week ending on 16th, accompanies by close to $4 billion withdrawal from high yield debt market.

Slow economic recovery coupled with weakness in China and commodities are contributing more to the worsening outlook than 25 basis points hike from FED. Highly levered corporate balance sheet remain another concern, in a time of rate hike.