credit Markets

Betting On The Fed: Tsunami Into Credit Funds Smashes Records


Another week, another blockbuster haul for credit funds.

It should come as no surprise that investors continue to pour money into investment grade and high yield bonds. After all, the market is backstopped by the Fed. And yet, even as the inflows aren’t surprising, they are quite large and thus noteworthy indeed.

Investment grade funds took in $9.914 billion in the week ended June 3, Lipper data out Thursday afternoon showed. As far as I can tell, that is a record.

Over the past eight weeks, IG funds have taken in more than $44 billion, recouping roughly 40% of the massive outflows seen during the panic.

Obviously, the Fed’s decision to backstop the US corporate bond market was the major catalyst behind the change in investor sentiment. Last week, the market got a look at the breakdown of the Fed’s credit ETF portfolio as it stood after the first week of purchases.

High yield funds had another big week as well, on Lipper’s data. Junk funds took in $5.746 billion, marking the 10th straight week of inflows.

From where I’m sitting, it appears as though five of the top six largest weekly junk fund inflows on record in Lipper’s data have come in 2020.

The total inflow for investment grade and high yield funds combined was nearly $17 billion in the week ended Wednesday.

As a quick aside, short interest on JNK and HYG (two popular junk ETFs that are part of the Fed’s portfolio) has collapsed to the lowest in four years, and the lowest in 2020, respectively.

Each saw big inflows in May as investors effectively looked to front-run the Fed, and then invest alongside Jerome Powell.


6 comments on “Betting On The Fed: Tsunami Into Credit Funds Smashes Records

  1. I wonder what limitations if, any, there are to the Fed’s willingness to bid on 13% PIK garbage and other paper on the edge of default.

  2. Where is the money coming from?

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