credit Markets

Another Week, Another Huge Haul For Credit Funds, As Inflows Hit $92 Billion In Two Months

The tsunami continues.

Corporate America flooded the market with new issuance in the first half of 2020 as the C-suite looked to build cash buffers and otherwise stack the sandbags ahead of the COVID hurricane.

Thanks to the Fed’s backstop, the market was receptive. Investors have been more than willing to frontrun and/or invest alongside Jerome Powell, whose commitment to buy corporate bonds continues to draw the ire of critics.

I’m running short on adjectives when it comes to the weekly deluge of flows into corporate credit funds. Suffice to say inflows continue to be robust, especially considering the economic backdrop. The latest data from Lipper, out Thursday, shows investment grade funds took in more than $9 billion for the second straight week.

It was the ninth consecutive weekly inflow. Around 50% of March’s historic bloodletting has now been reversed.

It’s the same story in high yield. Junk funds took in another $5.1 billion in the week ended Wednesday, on top of nearly $6 billion last week.

That makes 11 weeks in a row for high yield.

As Bloomberg’s Gowri Gurumurthy notes, five high yield deals for $3.8 billion priced on Wednesday “even as volatility increased”. Month-to-date issuance pushed above $20 billion.

Combined, high yield and investment grade funds have taken in some $92 billion since the week of April 15 on Lipper’s data.

It’ll be interesting to see if appetite for junk remains voracious in the event Thursday’s rather acute risk-off move turns out to be more than a red blip on an otherwise green radar screen.

The story of the year for credit is the same as it is for equities – an acute bout of turmoil, a Fed intervention, and a “V-shaped” bounce.

That, even as it’s still far from clear what “letter” will best define the shape of the economic recovery.


 

5 comments on “Another Week, Another Huge Haul For Credit Funds, As Inflows Hit $92 Billion In Two Months

  1. When someone tells you there is no way they will ever lose control of a situation like this and they have unlimited ammo at their disposal do we want to believe them ??? Maybe I’ll just watch what they do not what they say… Gotta’ gut feeling Fed might just lose control here….

    • Same feeling here but struggling to understand what “lose control” might actually look like.

      • Loss of control? Unless the Fed is willing to cover all corporate debt, which at this juncture probably includes all the junk, it would mean yields would begin to rise rapidly which would probably ignite a conflagration in the bond market of the order that Albert Edwards has envisioned.

        The problem with the Fed as an insurance company is what you are seeing happen right now –“Adverse Selection.” Just like the sickest people will try to buy the most health insurance, so the companies with the dodgiest balance sheets will issue the most debt and today they find willing buyers who are confident that the Fed will cover their bets. The analogy is not perfect: when every policy holder simultaneously develops N stage cancer, the insurance company goes bankrupt which the Fed, by definition, cannot do. But a Fed laden with a balance sheet packed with toxic debt piled beyond the celestial sphere does not make for an aromatic financial future for any of us.

        • Thanks for taking a swing at this. I don’t have a dog in the fight here. Just playing around with ideas. So, my question is, say the Fed has a trillion dollars of bonds from bankrupt companies on its books… So what? Are there real, pragmatic consequences or does it just sound awful?

          • Monetizing debt that becomes non-performing is very bad. Do it enough and comparisons to Weimar Germany become credible.

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