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Data: Investment Company Institute; Chart: Andrew Witherspoon/Axios

Investors have gotten very bullish in the past two weeks, but it's not stocks they're buying, it's bonds — especially highly rated, low-yielding investment grade corporate bonds.

Why it matters: Unlike in past market rallies when cash flooded into traditionally risky assets like stocks and high-yield bonds, money is flocking to traditionally safe alternatives even after 2019's stellar gains.

Driving the news: In the week ending Jan. 8, bond funds tracked by the Investment Company Institute saw the highest level of inflows on record. That theme continued in the week ending Jan. 15, with the fourth highest inflows ever.

  • Lipper, which tracks more than $40 trillion of global assets and has data dating back to 1992, reports that bond buying over the previous weeks was the highest for any two-week period on record.

What's happening: Strategists say investment grade bonds — issued by companies that have been given top ratings, above BBB, by major credit ratings agencies — are now en vogue. This is because investors remain worried about a major stock market downturn, but still want to chase yield and strong returns, which IG bonds delivered in 2019.

  • "Nobody is expecting a blowout year in bonds; nobody's pounding the table, saying 'Back up the truck, get into bonds,'" David Lafferty, chief market strategist at Natixis, tells Axios. "They just don't love the valuations" in the stock market.

The big picture: The flows also are a product of the current economic environment, analysts say.

  • "If you look at manufacturing, capital expenditures, business spending it’s all weak, but offsetting that is a decent job market and strong consumer," Subadra Rajappa, head of U.S. rates strategy at Société Générale, tells Axios. "We're not getting any clear signal."

Further, the Fed is expected to be on hold and trade tensions between the U.S. and China have simmered, but global economic data have not yet pointed to a solid rebound or a deterioration.

What's next: The ECB holds its policy meeting today, with the Fed and other major central banks to follow in the coming days, but no major policy shifts are expected.

  • The market is looking for its next momentum driver and investment grade bonds, which typically offer higher yields than Treasuries and less risk than stocks, may be the beneficiary.

Go deeper: Investors poured record cash into bonds last week

Go deeper

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