NEW YORK, Jan 31 (Reuters) - U.S. junk bond mutual funds lost a net $648.9 million of cash in the week ending Wednesday, the most in four months, as investors worried about a possible war with Iraq favored safer securities.
The weekly outflow, reported by AMG Data Services of Arcata, California, is the second in a row, following inflows in 13 of the prior 14 weeks. It is the largest outflow since the funds lost $1.4 billion in the week ending Sept. 25.
Fund flows are considered a good barometer of sentiment for junk bonds, which lack investment grades and carry high, often double-digit yields to compensate for higher default risk. Outflows may make it costlier for such companies as Crown Cork & Seal Co. , TRW Auto and Trump Hotels & Casino Resorts Inc. to sell their respective $1.75 billion, $1.4 billion and $475 million of junk bonds in February.
Junk bonds have easily been the best performing U.S. junk bond asset class this year, gaining 2.94 percent on a total return basis, according to Merrill Lynch & Co. The bonds, however, are slightly in the red since mid-month.
The average junk bond now yields 11.4 percent, or 8.07 percentage points more than similar maturity U.S. Treasuries, Merrill Lynch said. That compares with a yield of 11.91 percent and spread of 8.71 percentage points at the start of 2003.