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Global retreat from junk bond and emerging market funds takes hold

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Investors haunted by higher U.S. borrowing costs are paring exposure to two of the hottest fixed-income trades of 2017: emerging markets and high-yield debt.

The biggest ETFs that track the two asset classes posted about $3.1 billion of withdrawals last week as U.S. Treasury yields breached a level that spurred a global selloff. The losses from the junk fund (HYG) were the biggest since Oct. 2016, while those from developing nation fund (EMB) were the biggest since July last year.

"The breaks higher in U.S. yields are rocking several parts of the market," wrote Dave Lutz, head of ETFs at JonesTrading Institutional Services. "HYG is not a fan."

In fact, at $2.5 billion, the cumulative outflow from HYG and its $11 billion peer, the SPDR Bloomberg Barclays High Yield Bond ETF (JNK), is the second-worst on record.

Above all others, millennials are likely to include the funds in their portfolios, Schwab says.
September 19

Few are expecting a repeat of last year’s gains in emerging markets and credit, when the global economic recovery and risk appetite helped propel returns of at least 8%. Accelerating U.S. inflation, bets on a more hawkish rate path by the Federal Reserve and stretched corporate balance sheets are seen as headwinds.

Bloomberg News