Were you wondering whether I was overstating the case in terms of “everyone selling their junk” in the wake of crude’s epic collapse last week?
Were you also wondering if perhaps all of my pounding the table with regard to the spike in HY-crude correlation and accompanying spread widening (both in cash and synthetic) was overdone?
Well wonder no more.
3rd Largest HY Outflow on Record. US HY funds weathered a $4.1 billion outflow over the past week for the 3rd largest weekly redemption on record, according to EPFR (Exhibit 1). Over three-quarters of this week’s outflow came from mutual funds–a departure from the prior week when HY ETF outflows dominated, with $2.5 billion exiting in more of a momentum-driven retreat ahead of the FOMC. Not only does this two-week trend wipe out the $2.3 billion of cumulative HY inflows in the prior weeks of the year, but the weak HY retail sentiment compares to inflows into IG over the past two weeks, totaling $1.7 billion and $2.3 billion.