Investors poured nearly $5 billion into riskier U.S.-based high-yield "junk" bond funds during the week that ended March 2, the largest inflows into these funds on record, according to data from Lipper.
It was the group's largest seven-day haul since at least 1992, when Lipper's record-keeping began, after prices on high yield bonds were pounded for months and average yields rose above 10 percent in February, Bank of America Merrill Lynch index data show.
The move comes amid an easing of investor anxiety after a string of better than expected U.S. economic data, a stabilization in crude prices and the view that central banks in Europe, Japan and China are prepared to provide further economic stimulus if needed, the Financial Times explained.
“People are a little less concerned about China and there’s less talk about recession in the US,” Sabur Moini, a high yield portfolio manager with Payden & Rygel, told the Financial Times.
“Generally the tone is much better, valuations are certainly attractive and that is why you have money coming in.”
During the week, emerging-market debt funds also took in $190 million and emerging-market stock funds took in $153 million in new money. Financial and banking sector stocks took in $424 million, their first inflow in a month, Lipper said.
Yet the markets' yo-yoing sentiment was also on display. While high-yield posted its banner week, U.S.-based precious metals commodities funds, seen as a safe haven, also attracted a robust $1.3 billion in new cash during the same time, Lipper said.
The funds - which invest in gold, a top-performing asset this year - notched their eighth straight week of net new money, according to Lipper, their longest streak of inflows since late 2012.
"We saw a relief rally," Lipper analyst Tom Roseen told Reuters.
"People have been willing to put up with a bit more risk in hopes of getting a higher return," he said.
"Investors are just not sure what's going on," said Roseen. "As long as we have this undertow of oil prices going down and soft economic news we're going to see this volatility."
Stock funds based in the United States posted $2.4 billion in outflows during the same week, for a ninth straight week of net withdrawals from such investments, Lipper data showed.
The outflows stretched across both domestic and international shares. European and Japanese stock funds both posted their fifth straight week of outflows, while energy and technology sector funds posted outflows as well, Lipper said.
Global junk-bond defaults will rise to the highest level in seven years in 2016 as a prolonged downturn in commodity prices continues to wreak havoc on company profits and balance sheets, according to Moody’s Investors Service, Bloomberg reported.
The ratings company forecasts that the speculative-grade default rate will reach 4 percent this year, up from 3.5 percent in 2015 and the highest level since 2009. The default rate for all of Moody’s-rated corporate issuers is estimated to rise to 2.1 percent, also a post-financial crisis high, from 1.7 percent last year.
"Persistently low commodity prices, slowing economic expansion and widening high-yield spreads will send default rates higher in 2016," Moody’s credit analyst Sharon Ou wrote in a Feb. 29 report. Diminished credit quality "combined with the sharp increase in defaults and rising investor caution, indicate that the credit cycle is turning."
(Newsmax wire services contributed to this report).
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