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Fund Investors Buy Most Junk Bonds in More Than 2 Years

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(Dollar Photo Club)

Friday, 08 February 2019 09:04 AM

U.S. fund investors flooded high-yield bonds with cash in recent days, Lipper data showed on Thursday, after the Federal Reserve's rate-hike holiday.

High-yield "junk" bond funds pulled in nearly $3.9 billion during the seven days ended Feb. 6, the most since July 2016, the research service said.

The debt is issued by companies seen as less likely to repay, and they offer steeper yields to entice investors.

The U.S. Federal Reserve's Jan. 30 statement that it would be "patient" on further interest rate hikes halted a trend to higher borrowing costs that until recently has proceeded like clockwork, with Fed hikes once a quarter since spring 2017.

That patience would seem to reduce the likelihood that rising rates would push the economy into a tailspin and make the most indebted borrowers deadbeats.

"We're seeing the 'we missed the rally' blues from retail investors," said Tom Roseen, head of research services for Lipper. "People are willing to put money back to work in the fixed-income markets. It makes sense to me with the Fed saying they're not going to raise rates any longer."

Companies with risky credit profiles brought $11.7 billion in new high-yield debt to market in the first month of the year, after a nearly six-week dry spell at the end of 2018. A widely followed ICE BofAML high-yield index, meanwhile, is at a record high price level.

One area within the riskier bond universe continues to be under pressure: leveraged loans. Lipper's leveraged loan category recorded $742 million in withdrawals for the week, marking a 12th straight week out of fashion.

BlackRock Inc chief investment officer of global fixed income Rick Rieder told Reuters on Monday that Fed patience means there is less value in the loans' feature of paying investors more when rates rise. "You'll get more defaults in the next couple of years," Rieder said.

"You can get your yield in other places." Short U.S. Treasury funds recorded $1.5 billion of withdrawals in the latest week, the most since March 2016. The category nearly doubled in size in 2018 on caution around rates.

U.S. money-market funds gathered $20.5 billion during the week, the most so far this year, Lipper said. Some money fund yields are now running above those of short-term Treasuries, which fell on the Fed news. "Longer term, the yield matters," said Peter Crane, president at Crane Data LLC, which focuses on money markets. "It always matters." 

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U.S. fund investors flooded high-yield bonds with cash in recent days, Lipper data showed on Thursday, after the Federal Reserve's rate-hike holiday.
junk, bond, fund, investors
Friday, 08 February 2019 09:04 AM
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