Investors yank $6.8 bln from high yield bonds, 3rd largest outflows-BAML
LONDON, Nov 17 (Reuters) - Investors pulled $6.8 billion from high yield bond funds over the past week, their third largest outflows on record, Bank of America Merrill Lynch (BAML) said on Friday, as the sell off in junk debt accelerated.
High yield bonds have returned around 8.6 percent this year, with European junk bonds delivering almost 19 percent, but over the last few weeks investors have been banking gains rather than loading up on more debt.
In the United States, three high yield bond deals were pulled from the market in the space of a week.
BAML's analysts said the three-week "mini taper tantrum" had been kickstarted by the European Central Bank's (ECB) tapering announcement on Oct. 26, with European high yield spreads up 50 basis points since the ECB's meeting.
"Investors remain heavily reliant on (ECB President Mario) Draghi as (the) savior of global liquidity and risk assets," they said.
As a yardstick for comparison, BAML cited the meltdown in high yield that occurred from fourth quarter 2015 to first quarter 2016, which snowballed into $25 billion of redemptions.
Investor sentiment also soured on emerging market debt, with the largest outflows in 42 weeks - albeit a modest $100 million. Emerging market sovereign bonds have returned around 9.6 percent in dollar terms year-to-date.
But there was no contagion from high yield to investment grade bonds, which attracted $4.8 billion of net inflows. This was not enough to offset the redemptions elsewhere however, and global bond funds lost $900 million in total, the first outflows in 35 weeks.
Equity funds pulled in $3.2 billion, with tech stock funds attracting $1.1 billion, their second highest inflows on record after last week's $1.3 billion.
The S&P 500 tech sector is up over 37 percent year-to-date as investors have piled in to Facebook, Amazon, Apple, Netflix and Google parent Alphabet.
This has prompted some investors to express caution at the valuations.
"The air in risk assets (is) getting thinner but (the) Big Top (is) still ahead of us," BAML said, adding that the November sell off was just a "dress rehearsal."
U.S. equity funds attracted $1 billion, Japanese equities pulled in $2 billion and emerging market stocks $600 million. But Europe suffered $1.1 billion of outflows after a strong run. (Reporting by Claire Milhench; Editing by Toby Chopra)