Investment-grade U.S. corporate bond funds and ETFs suffer largest weekly outflows of the year

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Investors have withdrawn billions of dollars from investment-grade U.S. corporate bonds and related exchange-traded funds over the past week as the Federal Reserve’s aggressive rate-hike plans stoke fears of a economic downturn.

High-quality U.S. funds and ETFs saw the largest weekly outflows of $8.9 billion in the week ended June 22, up from $6.56 billion a week earlier (see chart), according to BofA Global, in a weekly report.

SOURCE: BOFA GLOBAL RESEARCH, FINRA, TRACE, FEDERAL RESERVE

Read more: US corporate debt falls to lowest prices since 2008. What happens next depends on inflation

“These weekly outflows were the largest this year, surpassing the previous record of $8.07 billion in outflows during the week of May 11,” a BofA Global Research team wrote Thursday. “Outflows were largely driven by ex. HG in the short term (at $7.12 billion vs. $5.49 billion), while HG outflows in the short term remained more subdued (at 1. $79 billion versus $1.06 billion).

Investors in the US corporate debt market have been hurt by the sector’s sharply negative performance this year, particularly after high inflation data prompted the Federal Reserve to raise its benchmark rate by 75 basis points, largest since 1994.

The largest ETFs for US corporate bonds were heading for weekly gains, but steep annual losses. The iShares iBoxx $ Investment Grade Corporate Bond ETF LQD,
+0.12%
was up 0.1% on Friday, but down about 17% on the year so far, according to FactSet data.

Data from the Federal Reserve and the Securities Industry and Financial Markets Association (SIFMA) shows that US businesses now face $10 trillion in outstanding debt in the first quarter of 2022.

The 10-year Treasury yield TMUBMUSD10Y,
3.135%
climbed to 3.12% on Friday, but remains significantly lower after hitting an 11-year high earlier this month. Treasury yields move opposite to price.

Read more: What the Fed’s Biggest Rate Hike in Decades Means for the Bond Bear Market

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