US Stock Market: US investment-grade bond funds see record weekly outflows as inflation fears rattle markets

US investment-grade bond funds and exchange-traded funds suffered record weekly outflows in the week ended July 22 as surging oil prices and rising Treasury yields triggered a sharp selloff in high-quality corporate debt, as per LSEG Lipper data, according to a Reuters report.

Investors pulled a net $7.1 billion from U.S. investment-grade bond funds during the week, marking the largest weekly withdrawal on record. The exodus followed a record one-day outflow of $8.2 billion on July 20, highlighting growing concerns over the outlook for interest rates and inflation.

The selloff reflected mounting pressure on investment-grade bonds, which are particularly vulnerable to rising interest rates because of their longer maturities and lower coupon payments. Treasury yields climbed sharply while credit spreads widened, reducing the appeal of fixed-rate corporate debt.


The shift in sentiment came as oil prices surged nearly 40% this month to trade above $100 a barrel. Reuters attributed the rally to Houthi attacks on commercial shipping in the Red Sea and fears of broader military action involving Iran, developments that have heightened concerns about global energy supplies and inflation.

The renewed inflation worries have also led investors to reassess the outlook for U.S. monetary policy. According to Reuters, traders have more than doubled the implied probability of a Federal Reserve interest rate hike at next week's policy meeting to roughly one in three, based on CME Group's FedWatch Tool.

The sharp repricing in rate expectations sparked a broad Treasury selloff, pushing the benchmark 10-year U.S. Treasury yield to its highest level since January 2025.

While investment-grade funds experienced heavy withdrawals, investors continued to favor other fixed-income segments that are generally less sensitive to rising yields.

High-yield bond funds attracted approximately $534 million in net inflows during the week, while leveraged-loan funds also recorded modest inflows. High-yield bonds typically offer higher coupon payments and shorter maturities, while leveraged loans carry floating interest rates, making both asset classes relatively more resilient when government bond yields rise.

The market performance reflected the divergence in investor preferences. The iShares iBoxx $ Investment Grade Corporate Bond ETF, which tracks investment-grade corporate bonds, has declined 2.58% so far this month, compared with a 0.93% drop in its high-yield counterpart, underscoring the greater pressure on higher-quality fixed-rate debt amid rising inflation and interest-rate expectations, as per the report.