A total of $1.5 billion was liquidated from high-yield mutual funds in the week ending March 23, marking the heftiest departure from the asset class in 10 months and the sixth consecutive week of outflows. The outflow results from noise surrounding Federal Reserve policy, Treasury volatility and uncertainty regarding General Motors based on its recent profit warning, according to market participants. As a result, high-yield spreads widened significantly, with the Merrill Lynch High-Yield Master II Index rising to 319 basis points, from 271bps in the middle of March.
Brian Arsenault, high-yield strategist at Morgan Stanley, said the negative trend should continue and expects smaller outflows will persist, especially if the Treasury market continues to back up. That being said, he does not expect another $1 billion plus weekly outflow in the near term.
