Hooray For Jay: Tsunami Of Inflows Into High-Grade Bonds Hits 13 Weeks

The tsunami continues.

Investment grade funds raked in another $7.18 billion in the week through July 8, Lipper said Thursday, bringing the streak of weekly inflows to 13.

Blue-chip debt funds have taken in at least $7 billion in six of the last seven weeks on Lipper’s data, and have now recouped around three-quarters of the massive bloodletting seen during the crisis.

This week’s haul was the sixth-largest ever. Five of the six largest inflows on record have occurred over the past seven weeks.

To reiterate what is now a weekly refrain, the turnaround in market sentiment vis-à-vis IG credit since March is astounding.

While it’s hardly surprising that the Fed managed to turn the tide by promising to backstop corporate bonds, it’s safe to say the reaction both in terms of flows into the asset class and the sheer quantum of deals which have gotten done in the primary market has exceeded expectations. That’s especially true when you consider the Fed hasn’t actually purchased all that much, and didn’t even start buying ETFs until mid-May. Individual corporate bond buying didn’t begin until mid-June.

You might recall that last week, high yield funds saw $5.5 billion in outflows according to Lipper. It was the fourth-largest weekly outflow on record, and suggested profit-taking after the best quarter for junk debt in a decade.

Fast forward a week and investors are apparently ready to embrace junk anew. High yield funds took in $2.13 billion in the week ended Wednesday.

“Second-quarter 2020’s surge in high-yield bond issuance enhanced high-yield liquidity by adding cash to the balance sheet and/or lengthening maturities”, Moody’s said, in a Thursday note.

High yield issuance hit a record in June, thanks in no small part to the market’s confidence in the Fed’s backstop, despite the fact that Jay Powell’s high yield purchases are limited in scope.

“Though it is far too early to pop open the bubbly (especially not in a bar), July-to-date’s credit rating revisions of US high-yield issuers show more upgrades (14) than downgrades (8)”, Moody’s went on to say.

Combined, IG and high yield funds haven’t seen a net outflow since the week of April 8.

Now everybody clap for ol’ Jay.