A new part of the market is melting down as panicked investors get another 'wake-up call'

During the recent market meltdown, one asset class remained a silent beacon of strength.

You may not have noticed as stocks and Treasurys took massive plunges, but corporate bonds hung in there quite nicely.

Hopefully fixed-income investors enjoyed the placidity while it lasted, because that all changed this past week, as corporate bonds became mired in a selloff of their own.

The damage is perhaps best viewed from the perspective of capital flows. Bond funds saw outflows of $14.1 billion during the week ended February 14, the fifth-biggest redemption on record, according to data compiled by Bank of America Merrill Lynch. Roughly $11 billion of that came from high-yield funds, the data show.

Screen Shot 2018 02 16 at 12.47.03 PM Bank of America Merrill Lynch

As such, credit markets face a crucial stretch that will determine how fleeting this selloff ends up being. Investors might very well step in and "buy the dip" amid tightening spreads, but the longer volatility persists, the more scared investors will get, according to Morgan Stanley.

Recent price swings in credit markets are "a wake-up call that central banks are withdrawing liquidity, and that the process is not going to be smooth," Adam Richmond, Morgan Stanley's head of US credit strategy, wrote in a client note. "We now have high conviction that liquidity dynamics are changing, that markets are finally becoming more aware of that reality."

Source :- businessinsider