U.S. investment-grade bond funds experienced a record $7.1 billion in net outflows for the week ending July 22, according to data from LSEG Lipper. The withdrawal followed a single-day outflow of $8.2 billion on July 20. Analysts cited rising Treasury yields and widening credit spreads as primary factors for the shift, as investors reduced exposure to fixed-rate corporate debt.
The increase in yields coincided with a rise in global oil prices, which surpassed $100 a barrel following Houthi attacks on tankers in the Red Sea. The energy price spike led many investors to adjust their inflation expectations. Data from CME Group’s FedWatch tool indicated that traders more than doubled the implied probability of a Federal Reserve interest rate hike at the upcoming policy meeting to approximately 33%.
Market performance varied across different debt categories. While investment-grade funds saw record withdrawals, high-yield bond funds recorded inflows of approximately $534 million, and leveraged-loan funds also saw modest gains. Financial analysts noted that high-yield bonds and floating-rate loans often have shorter maturities or variable interest rates, making them less sensitive to rising government bond yields than longer-term investment-grade debt. In the same period, the iShares iBoxx $ Investment Grade Corporate Bond ETF declined by 2.58%.