The influx of cash into corporate-bond funds accelerated this week in yet another sign credit markets are rebounding after the Fed’s recent flip to a more dovish outlook.
U.S. high-yield funds saw an inflow of $3.86 billion in the week ended Feb. 6, the biggest net increase since July 2016, Lipper data show. This follows a modest inflow of US$73 million last week and a similarly large inflow of US$3.28 billion three weeks ago.
Investment-grade corporate bond funds also got a large dose of inflows with US$2.67 billion added for the weekly reporting period ended Feb. 6, according to Lipper. High-grade funds only saw US$34 million of inflows in the prior week.
High yield is the best-performing asset class in fixed income, with a 5.25 per cent return so far this year. January was the best first month for junk bonds since 2009, while December was the worst since 2015.
Issuance in the primary market has also rebounded after a blank December. February’s sales volume thus far has reached US$9 billion, including two junk-rated deals that boosted their offering sizes today after seeing outsized demand.
Despite that, issuance is still 13 per cent less than at this time last year, leaving increasing amounts of cash pursuing fewer bonds. The Bloomberg Barclays US Corporate High Yield Bond Index hit a record 2,010 at the close yesterday.
Policy makers delighted markets last week by signaling they may not tighten monetary policy again for a while. The combination of low rates and steady economic growth is expected to underpin a credit bull market, at least for the near term.