Individual investors, who hold more sway over the corporate bond market than ever, are allocating the least amount of cash this year to U.S. high-yield mutual funds in a signal that sentiment may be shifting.
Speculative-grade bond funds reported net inflows of $75 million through April 16, the lowest since a monthly outflow of $9.1 million in December, according to EPFR Global data. U.S. mutual funds reported an unprecedented $698.3 billion of corporate bond assets at the end of February, from $327.9 billion in 2008, data compiled by the Investment Company Institute show.
Elsewhere in credit markets, a benchmark gauge of U.S. company credit risk increased for a second day, with the Markit CDX North America Investment Grade Index, which investors use to hedge against losses or to speculate on creditworthiness, climbing 1.2 basis points to a mid-price of 100.6 basis points as of 12:18 p.m. in New York, according to prices compiled by Bloomberg.
“Each and every investment bank has significantly reduced the capital it’s prepared to commit to taking risk in recent years,” said Constantinos Antoniades, the founder of Vega-Chi Ltd. in London, which operates an electronic trading system for high-yield and convertible bonds.
BlackRock Inc., the world’s largest money manager, said April 12 it plans to start a bond-trading system that will help investors to bypass investment banks. The firm, which hopes to attract institutional investors including sovereign wealth funds and insurers to the platform.