High-yield bonds in the US and Europe are under pressure, suggesting that the recent rush to protect portfolios from a potential surge in inflation may be reversing.

Us junk bonds are set to fall for a second week in a row, while European junk bonds are expected to fall for the first month since September, according to the Bloomberg Barclays index. There have been withdrawals in both regions, with outflows from the United States for the third consecutive week in the week ended May 19, according to Refinitiv Lipper.

Confidence improved on Friday as strong economic data and corporate earnings pushed the stock market higher. The market has been volatile this week, affected by inflation concerns and a sell-off in risky assets. Investors are returning to government bond funds at their fastest pace in six months, suggesting the market has priced in expectations of potential Fed tightening.

Since vaccination in Europe and the United States led to the reopening of economies, there have been fears that rapidly rising prices will engulf the value of fixed-income bonds held by investors, putting pressure on credit markets.

There are fears that inflation unleashed by the economic rebound will force central banks to scale back asset purchases and raise interest rates, ending support for bond markets throughout the epidemic.

High-yield bonds have been boosted before because of their high risk premium, so they are less sensitive to higher interest rates than investment-grade bonds and can be used as a hedge against inflation. The latest developments suggest that such deals may have gone too far.