CRACKS IN CREDIT MORE PRONOUNCED SINCE FEBRUARY VIX IMPLOSION
-- ABSTRACTED FROM: 03-23-18 ZeroHedge - "Retail Whiplashed By 2nd Largest ETF Outflow On Record; Longest HY Outflows Since 2007" --
According to the fund flow data, it's time to worry about credit and especially high yield, because as BofA's Michael Hartnett writes, "credit is cracking” after the 10th straight week of HY bond fund outflows - the longest streak since 2007 - as another $1.6BN was pulled; alongside slowing $1.4bn inflows to IG bonds (worst start for US IG returns since 1994), all amid investor concerns of excess leverage highest since 2010. Even junk ETFs - the preferred investment instrument by retail - have barely seen any positive weeks this year,
Commenting on the rising tide of junk bond outflows, Bloomberg warns that the positive momentum in Europe’s high-yield primary market this month may be short lived, as two weeks after the window for issuance opened, and 7.1 billion euros ($8.7 billion) of new issues later, persistent fund outflows seem set to slow sales as a looming trade war weighs on the market.
Investor outflows are “probably the biggest concern” in the European high-yield market, Armin Peter, global head of DCM syndicate at UBS Ltd, said at a briefing event on Wednesday.
To this, BofA adds that European junk bond funds have suffered 19 straight weeks of investor redemptions, while February was the biggest month of outflows for high-yield funds since June 2013, the note said. A JPMorgan note on March 16 said cumulative outflows for junk is now at €3.4 billion so far this year.
This is starting to hit the primary market: this week TUI AG will not be pricing a planned bond issue, saying timing was subject to market conditions, while an entity within the Virgin Media Group sold receivables notes at the wide end of price talk. The weak appetite for the Virgin Media notes was likely indicative of the effect of outflows, because most investors who like the bonds are “pretty full,” said Azhar Hussain, head of global high yield at Royal London Asset Management.
Yields in the market are “too low for the risk” involved, according to Ville Talasmaki, head of credit investments at Sampo Oyj. “To me, a high yield bond is a low yield bond with high risk.” Talasmaki said he has been reducing his exposure by not re-investing when bonds mature and by selling some notes, he said - though in some cases he has bought “very selectively” in primary.
And just to demonstrate his thesis that "credit is cracking", BofA's Michael Hartnett shows the following chart which shows the sharp slowdown in relative flows for HY vs IG.