(Bloomberg) -- US corporate high-yield bond funds experienced their second largest weekly outflow of the year with the exodus from risk assets extending after Federal Reserve Chair Jerome Powell dashed any hopes of a pivot on rate hikes next year.
Investors withdrew $5 billion for the week ending Aug. 31, according to Refinitiv Lipper data, the second straight week of outflows totaling more than $9.5 billion. US investment-grade bond funds also saw outflows with investors pulling $4.6 billion from mutual funds and exchange-traded funds.
Risk premiums across corporate bonds widened over the past week after investors began to price in that rates will be going higher and staying there for longer than previously expected by some. Spreads on one of the riskiest tiers, CCC debt, widened more than 50 basis points in the past week to 1,028 basis points -- above a level that is considered distressed. Higher spreads on lower-rated bonds suggest investor concern about the ability for some of corporate America’s neediest borrowers to weather a downturn.
The outflows could translate to selling pressure in the coming days after high-yield and blue-chip bonds lost 2.3% and 2.9% on a total return basis for the month of August respectively. The outlook for credit performance remains bleak going forward.
“With a more hawkish tilt emerging from Jackson Hole and continued macroeconomic uncertainty, return prospects for the Bloomberg US Corporate High Yield Bond Index remain muted,” Noel Hebert, Bloomberg Intelligence director of credit research, wrote Monday.
US leveraged loan funds, meanwhile, saw a roughly $1.1 billion outflow following a $987 million withdrawal the prior week. The average price for loans is at 94.56 cents on the dollar, according to the Morningstar LSTA US Leveraged Loan Price Index. While that marks a recovery from the lows of the year, it’s far below the high of about 99 cents in January.