(Bloomberg) -- A record amount of junk bonds are trading at levels typically seen in high-grade debt, as traders see little evidence of economic weakness ahead, according to Bank of America Corp.  

Some 48% of high-yield bonds by par were trading inside of 200 basis points at the end of April, according to the bank. Earlier episodes of notes trading at these levels coincided with Federal Reserve hikes or pauses, only to be abruptly derailed by interest rate cuts.

This may sound counterintuitive, strategist Oleg Melentyev wrote in a Friday client note, since the central bank’s cuts are currently viewed as a panacea by the market. 

But “the key to understanding this dynamic is in the fact that cuts often come in response to weakening economy,” Melentyev wrote in the note. “Since there is little material evidence of such weakness so far, the market is comfortable trading big swaths of HY at IG levels.”

Fixed income returns have struggled to advance this year as stronger-than-expected job reports coupled with stubborn inflation have pushed out the likelihood of interest rate cuts. The average total return for US investment-grade bonds this year is negative 2.2% while junk bond returns sit at 0.95% as of Thursday, according to Bloomberg indexes. 

While interest rate cuts are expected to be coupled with a cooling economy, fears of a recession have subsided, buoying riskier credits that would suffer from a downturn in growth. 

Friday’s jobs report, which showed that US employers scaled back hiring in April and the unemployment rate unexpectedly rose, helped ease perceived risk in corporate credit markets. Traders pulled forward bets on first Fed rate cut to September from November after the data was released. 

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