Intense investor withdrawal hits global debt market

Investors are getting out of debt as they try to weather wild market swings triggered by the Russian invasion of Ukraine and the prospect of multiple rate hikes.

Speculative-grade and investment-grade bond funds have suffered nine consecutive weeks of sizeable capital outflows, totaling $12.8 billion and $2.8 billion, respectively, according to a note from Bank of America Corp. which cited data from Global EPFR.

On United Statess, investors pulled $5.4 billion of high-grade corporate funds in the biggest weekly exodus since April 2020, according to data from Refinitiv Lipper for the period ended March 9.

Investors are fleeing as corporate bonds are causing their worst losses in years amid periods of widespread volatility following Russia’s ongoing invasion of Ukraine.

Galloping inflation fueled by the rise in the price of Petroleum it is also spooking markets as central banks struggle to contain prices, which are at their highest levels in years.

credit is being “cracking”wrote strategists of Bank of America led by Michael Hartnet in a note to customers.

It’s been a tough year and even the safest dollar corporate bonds are losing more than 8%, while equivalent euro-denominated debt is down more than 4.7%, according to data from the Bloomberg index. Instead, investors are turning to traditional safe havens like gold, which tends to rally in times of stress.

European corporate credit also faces another hit as the European Central Bank, the largest buyer, is preparing for a faster-than-expected exit from the market. The monetary authority said on Thursday that it could reduce bond purchases in the third quarter, removing a key pillar of support for companies in the region.

Corporate credit risk measures have fluctuated widely in recent days. A tracker of high-grade European corporate debt default swaps rose this week to its highest level in nearly two years, while the index Markit iTraxx Crossover of default swaps on speculative-grade companies this week exceeded 400 basis points for the first time since 2020.