Individual investors' love affair with junk bonds appears to be on the rocks. High-yield bond funds saw their fourth-largest redemptions on record in the latest week, professional investors have increasingly bearish positions on some of the funds and plans for new bond sales have been pulled.

The net outflow of $2.46 billion from high-yield mutual funds and exchange-traded funds contributed to the first weekly outflow for the entire taxable bond fund universe since mid-December, according to Thomson Reuters-owned Lipper.

It was also the biggest weekly withdrawal from junk-bond funds since August--despite being only the third outflow in the last 25 weeks, a stretch that saw $25.8 billion flow into the funds.

That is a marked shift in sentiment from earlier in the year, when a rally driven by optimism over Europe lifted all boats--even scrap in the junkyard--making high-yield bonds a magnet for investors' cash.

"Lately, a combination of pressures from Europe and questions about growth globally have made a lot of investors refocus their portfolios and reduce risk," said George Bory, global head of credit strategy at UBS.

Earlier this month, UBS said that recent net outflows from junk-bond ETFs would have been even bigger had it not been for traders who bet against the ETFs and had to cover their short positions by buying back ETF shares.

In the first quarter, investors reaching for yield in the low interest-rate environment snapped up junk bonds, helping low-rated borrowers refinance billions of dollars of existing debt. Private equity-backed companies struggling under debts they took on during the buyout boom benefited from that trend because investment managers were forced to put their money to work in new deals, sometimes risky ones.

Individual or "retail" investors in particular rushed to put their money into junk bonds because yields on offer there were better than most other parts of the fixed-income market. As of Feb. 29, the share of mutual fund assets in high-yield bonds rose to its highest point in a decade.

For good reason: junk bonds had outperformed all other major asset classes, including investment-grade bonds, for the last three years, according to data from Bank of America Merrill Lynch.

More recently--as of mid-May--fund assets invested in high-yield mutual funds and ETFs reached $260 billion, an all-time high, according to Lipper data.

Now the tide appears to be turning. Investors are pulling back and some companies are opting to reduce bond offerings or in some cases shelving borrowing plans altogether. HudBay Minerals (HBM) scrapped a $400 million offering planned for May 21, for example, and Univar canceled a $750 million deal two days later, rounding out a list of nine borrowers that have pulled deals worth nearly $3.9 billion in recent weeks because of weaker conditions, according to Standard & Poor's Leveraged Commentary & Data.

High-yield deal volume so far this month has slowed to $20.2 billion, according to data provider Dealogic, the lowest monthly tally this year and a 13% decline on total junk bond issuance up to this point in 2011.

Retail investors are behind most of the pullback. They are anxious and quick to sell at the first sign of trouble, increasing the risk of wild price swings for professional investors with more staying power.

"People are not inclined to sit through anything these days," said Kathy Jones, fixed-income strategist at broker Charles Schwab.

Institutional investors are worried about how the market will handle withdrawals from mutual funds and ETFs as the situation in Europe further frays retail investors' nerves. Many also wonder whether they could quickly sell their bond holdings if required to meet redemptions as the year drags on and talk of a euro-zone breakup continues.

Brendan Dillon, a portfolio manager at Aberdeen Asset Management Inc. in Philadelphia, said his firm is holding more cash than it normally would. "Managers know volatility is on the horizon and liquidity will dry up in the summer," he said.

An unusual $788 million trade in early May that stripped an ETF of 6.5% of its assets--and caused a record one-week decline in assets of the entire market for junk bond ETFs--also has long-term investors nervous that similar arcane practices will come at their expense.

Whoever made the trade apparently did so by accumulating shares in the SPDR Barclays Capital High Yield Bond ETF (JNK), which trades under the ticker symbol JNK, over a period of several weeks, and then redeemed the shares all at once, choosing to take back his investment in junk bonds rather than cash.

Meanwhile, top-tier mutual fund firms Vanguard and T. Rowe Price recently shuttered junk-bond funds to new investors, citing a need to protect existing investors' money as the funds grow.

Linda Wolohan, a spokeswoman for Vanguard, said the firm closed the fund on Thursday to "help preserve the investment flexibility" of Wellington Management Co., which serves as adviser on the $16.9 billion fund, which uses the ticker symbol VWEHX. She said that "further increases to the size of the fund could make it more difficult for Wellington to manage it effectively."

Mark Vaselkiv, portfolio manager of the T. Rowe Price High Yield Fund (PRHYX), said that if the fund got too big "it could eventually strain our ability to invest efficiently and result in an over-diversified fund with a less effective investment strategy." T. Rowe Price closed both that high yield fund and its Institutional High Yield Fund (TRHYX) on April 30.

As investors fret about recent outflows and how to manage such sizeable flows in and out of junk bond funds, there is a partial reprieve: Ford Motor (F), which accounted for 3% of one benchmark high-yield bond index, has been raised to investment grade by two rating firms, meaning it is no longer eligible for inclusion in the junk bond index.

Some funds that align their portfolios with that index have been selling Ford bonds in anticipation of the upgrade, generating cash to meet some of their redemptions and raising the attractiveness of other junk bonds that might be seen as a replacement for Ford, such as CIT Group bonds, according to Brad Rogoff, head of credit strategy at Barclays.

-By Katy Burne, Dow Jones Newswires; 212-416-3084; katy.burne@dowjones.com