Exchange-traded fund (ETF) investors are abandoning junk bonds on the back of growing inflation fears. BlackRock’s iShares iBoxx High Yield Corporate Bond ETF (HYG) saw its highest daily outflow of $1.2bn since February 2020, according to Bloomberg. The total outflow in 2021 so far has reached $5.6bn, putting the fund on track for its worst year since its inception in 2007.

“Investors are taking some risk out of their portfolio,” said Matt Maley, chief market strategist for Miller Tabak + Co. “With inflation fears growing, that means the yields on some safer assets will be rising as well.” However, the recent outflow suggests “unfounded fear” as high-yield debt is likely to perform well during economic recoveries, according to James Pillow, managing director at Moors & Cabot Inc. “Credit spreads remain tight, showing no signs of longer-term deterioration. Even emerging market credit spreads remain well behaved. So, short-term capitulation, that’s all.”
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