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Federal Reserve Chair Janet Yellen tried to alleviate fears surrounding the heightened stress seen in high-yield bonds Wednesday, by downplaying the shuttering of a number of Wall Street junk bond funds that took place last week.

Investors and analysts looking at the space now expect volatility to remain at elevated levels for the year ahead, with mixed views on whether junk bond weakness poses a risk to other pockets of the market in 2016.


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Following the Federal Reserve’s decision to raise rates by 25 basis points on Wednesday, Yellen said the Securities and Exchange Commission (SEC) had been in touch with Third Avenue, the high-yield credit fund that was forced to put redemptions on hold last week.

The move to block withdrawals from Third Avenue and fellow credit funds Lucidus and Stone Lion helped fuel a junk bond sell-off as investors attempted to pull their money from battered funds.

“Redemptions in high-yield bond funds have been increasing in recent months,” Yellen said at Wednesday’s press conference.

“But the Third Avenue credit focused fund was a rather unusual open-end mutual fund. It had very concentrated positions in especially risky and illiquid bonds and it had been facing very significant redemption pressures,” she added.
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