Funds that invest in high-yield corporate debt saw the pace of inflows accelerate this week as the Federal Reserve’s dovish tilt spurred new bond sales.
Investors injected $3.1 billion into retail funds in the weekly reporting period ended June 26, according to data from Refinitiv’s Lipper, a sharp rise from the $602 million added last week. This week’s inflow is the largest since February.
Junk bond funds have now seen a net inflow of $12 billion so far this year, according to Lipper data. This compares with a net outflow of more than $18 billion in the comparable period last year.
Issuance on Fire
New issue volume spiked this week following a sharp rally in spreads as the Fed is widely expected to cut interest rates for the first time in more than a decade.
More than 15 high-yield borrowers have already sold close to $10 billion of new debt since Monday, including the likes of Charter Communications Inc. and Virgin Media Inc. June is on track to be the busiest month for junk bond issuance in almost two years.
“People are reaching for yield,” said Bill Zox, chief investment officer for fixed income at Diamond Hill Capital Management Inc. “It’s not necessarily at the lowest rung, but there’s been significant inflows and the Fed going the other way has given investors a lot of confidence.”
High-yield remains the best performing asset class in credit with returns of 9.83% so far this year, according to the Bloomberg Barclays US Corporate High Yield Total Return Index.
Meanwhile, investment-grade bond funds saw a fourth consecutive week of inflows with $3.2 billion added, according to Lipper. Investors have put in a net $45 billion into high-grade funds year-to-date.
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