Investors who piled into the riskiest corners of the credit markets during seven years of rock-bottom interest rates are getting a reminder of how hard it can be to cash out.
With outflows from U.S. high-yield bond funds running at the fastest pace in more than a year, Martin Whitman’s Third Avenue Management took the rare step of freezing withdrawals from a $788 million credit mutual fund on Dec. 9. The firm’s assessment that meeting redemptions would be impossible without resorting to fire sales has put a spotlight on the dangers for junk-bond investors as the Federal Reserve prepares to lift interest rates as soon as next week.
"It’s definitely a dark cloud over the market," said Anthony Valeri, a strategist at LPL Financial, a Boston-based financial-advisory firm. Investor withdrawals "are driving the high yield market now more than anything. Institutions — hedge funds and mutual funds — are being forced to get out and unfortunately that’s pressuring the entire market."
Sridhar Natarajan, Miles Weiss & Charles Stein | Bloomberg