RECORD WITHDRAWALS FROM HIGH-YIELD BOND FUNDS

High yield bond funds have posted $7.1 billion in outflows according to Lipper data, the largest outflows on record.

There's already been a huge rush of money from high-yield bond funds in recent weeks, as the "reach for yield" trade that has dominated the market for years shows signs of unwinding. With concerns about the Fed perhaps warming up the first rate cut, the appeal of risky yield plays seems to be diminishing.

Meanwhile, U.S. based money market funds attracted just $7.8 billion inflows, the first inflows in four weeks.

This is all coming as talk ramps up that the Fed could raise rates sooner than expected as the economy shows signs of improvement.

"Recent underperformance of US high yield credit has put back to the forefront of the market the vulnerability of this asset class to rising US yields, and to the coming tightening cycle in the US," Societe Generale's Ahmed Behdenna said in a recent note. "Market reaction to recent US positive economic newsflow reminds us that the Fed tightening (which will come one day!) means lower expected returns for the asset class."

But it also reflects the uncertain trading environment as the Fed's massive market footprint is slowly reduced.

Jim Swanson of MFS Investment Management recently told the Wall Street Journal's Katy Burne that he was seeking extra yield on some bonds because selling them could now be difficult. "There's a question of what happens when everyone tries to sell [bonds] at once, and I want compensation for that," he said.

Here's SocGen's chart:

Burne reported U.S. funds investing in junk bonds just saw their second-worst monthly performance since November 2011, losing an average of 1.33% in July.

"Everyone is hoping to be first through the exit," Matt King, global head of credit strategy at Citigroup Inc.in London told Burne. "By definition, that's not possible."