(Bloomberg) -- Credit investors yanked cash from U.S. high-yield bond funds and added money to investment-grade securities as the global trade war and recession concerns prompted a move away from risky assets.
Investors withdrew $4.07 billion from junk funds for the week ended Aug. 7, according to Refinitiv’s Lipper. It was the biggest outflow since the end of October as the U.S.-China trade war heated up, causing equities to drop and interest rates to rally earlier this week. Investment-grade funds posted inflows of $2.8 billion.
The fund flows underpin a volatile week for risk assets with junk bonds slumping by more than 1% since the start of last week and the S&P 500 suffering its biggest decline of the year on Monday before erasing those loses by Thursday. Calm returned to the market as the People’s Bank of China was seen as attempting to stabilize the yuan amid U.S. accusations of currency manipulation, but credit traders remained jumpy about the possibility that the economic conflict could still ratchet up further.
The trade war escalation “could easily have spooked some investors and caused others to throw their hands up in the air and take some chips off the table,” said Scott Buchta, head of fixed income strategy at Brean Capital. “It’s very hard to trade in a market driven more by headlines than by the underlying technicals or fundamentals.”
While new high-grade debt sales have exceeded estimates this week, led by Occidental Petroleum Corp (NYSE:OXY).’s $13 billion bond deal to fund its acquisition of Anadarko, high-yield investors have largely stepped back. Junk-bond sales this week may stand at about $2.25 billion by Friday versus just under $10 billion for the week ended Aug. 10 last year.
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Clear Channel Outdoor Holdings Inc. brought some junk bond investors back after Monday’s equities market rout, with a transaction that may price tomorrow, however sales were largely muted. Plastic autoparts maker U.S. Farathane LLC meanwhile pulled a deal that was marketing, as arrangers cited market conditions.
Broader speculative-grade market metrics also deteriorated. On Wednesday, junk-bond yields rose near a two-month high. CCC rated bonds weakened the most, as spreads widened to 905 basis points more than U.S. Treasuries, their widest since January.