Junk corporate bond outflows of $2.9bn fuelled by falling oil prices

The junk corporate bond market has seen outflows surge this week fuelled by a drop in oil prices.

High-yield bonds saw outflows of $2.9bn (£2.27bn) in the week to Wednesday, bringing the three-week total outflows to $8.8bn.

Outflows in investment grade corporate bonds hit $2.5bn, reaching $8.8bn over the last three weeks, according to research from Jefferies.

Jefferies strategist Kenneth Chan said the asset class “continued to face significant redemption pressure alongside further widening of corporate bond spreads.”

AJ Bell investment director Russ Mould said the fresh strains in the “junk” corporate bond market have been driven by a fresh slide in oil prices.

He told Morning Wire: “Trump may love cheaper oil but it clearly scares those investors who have loaned money or bought the bonds of these firms and that will be a big factor in why credit spreads are widening again.”

Oil prices hit a one year low today after plunging 21 per cent in November, which is the worst month since the 2008 financial crisis.

“Advisors and clients also need to keep an eye on the previously rock-solid investment grad arena,” Mould added, “Credit spreads are starting to gently widen as company debt piles and the – perhaps ill-advised – use of borrowing to fund share buy backs – come under closer scrutiny.”