Bond Tourists Expose Soft Underbelly of America’s High-Yield Market
Inflows from increasingly fickle foreign investors pose new risks.
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Here’s another chart to scare you this Halloween: Foreign investors, who now represent 39 percent of funds dedicated to the U.S. high-yield fixed-income market, have become ever-more sensitive to the asset class’s performance since the financial crisis.
This dynamic—combined with rising allocations from mutual funds beset with liquidity mismatches—raises the prospect of volatile price swings if the credit cycle turns, according to a report this week from analysts at UBS Group AG.