Skip to main content

High-Yield Investors Suffer Bond Fund Losses

The U.S. High-Yield bond rout deepened Monday, with the bonds of dozens of low-rated companies falling anew and the shares of some large fund-management firms tumbling as well.

Investors are rushing out of junk bonds, spooked by last week’s closure of a mutual fund focused on some of the lowest-quality, highest-yielding bonds. The shutdown comes on top of fears that a spike in bond defaults is coming, and it’s led investors to rush for the exits in a corner of the market that generally doesn’t handle such things well.

The price drops are hitting many investors who are new to junk bonds and have little experience with the notoriously volatile market. Since the Federal Reserve slashed interest rates to a record low in 2008, investors have been creeping into ever-riskier options in search of more income.

In just two days, the central bank is widely expected to finally raise rates above their emergency low levels. The policy has helped avert a deeper downturn following the financial crisis, but critics say it’s also spread hidden risks throughout the financial system by making investors cavalier.

The declines reflected gathering concerns about risky companies’ access to financing, traders’ capacity to sell bonds without causing prices to fall, and ripple effects from the closure of a junk-bond mutual fund. Together, the concerns are feeding investor fears that the U.S. mutual-fund industry could face outflows that will test funds’ capacity to meet investor redemption requests.

The iShares iBoxx $ High Yield Corporate Bond exchange-traded fund, the largest junk-bond ETF by assets, was down about 1.5% Monday, after shedding 2% on Friday in its worst plunge since 2011, to trade at $78.34 a share.