Aug 17, 2020 - Economy

Junk bonds could see back-to-back record quarterly inflows

High-yield bond funds saw their sixth consecutive week on positive inflows for the week ended Aug. 12, data from Refinitiv Lipper showed, netting $1.5 billion for the week.

By the numbers: The six-week streak followed the fourth worst weekly net outflows on record dating back to 1992, showing sentiment on the riskier bond category has been soundly reversed.

  • High-yield or junk bond funds saw steep outflows in Q1 (-$14.2 billion) as investors reacted to COVID-19, but that was followed by record high quarterly net inflows in Q2 ($41.5 billion).
  • "Its net intake of $14.1 billion for Q3 to date has the potential to be its second-best quarterly result," Refinitiv Lipper senior research analyst Pat Keon said in a note.

Where it stands: "The performance from the high yield funds group has mirrored that of its fund flows activity for the year to date," Keon states.

  • After seeing significant losses and outflows, high-yield bonds have bounced back and are now down just 0.5% for the year.

Yes, but: While lower-rated high-yield bonds tend to be more correlated to stocks than other bond categories, high-yield has trailed the stock market's rebound this year.

  • In comparison to junk bonds' still-negative return for 2020, the S&P 500 has gained 4.4% year to date and the Nasdaq has risen 23%.

The intrigue: Refinitiv's data show most inflows to the category have come from mutual funds ($33.8 billion), while ETFs have contributed $21.8 billion to the total net positive flows.

  • Equity funds have seen negative fund flows so far this year.
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