Damn The Torpedoes: Investors Plow Another $11.6 Billion Into Credit Funds

I suppose it’s only fitting that the latest flows data from Lipper shows another week of massive inflows into credit funds.

I spent some time Thursday discussing “zombie” dynamics and the extent to which the Fed’s backstop for corporate bonds has emboldened issuers and investors alike, creating what Jefferies’ Sean Darby in May called “the perfect answer for a central bank dealing with a credit crunch”.

It’s a “perfect” near-term fix, that’s for sure, but as documented in the “zombies” discussion, it’s potentially perilous over the longer-run, as it risks precipitating a paradoxically disinflationary outcome, whereby misallocated capital isn’t purged, and excess capacity persists. And that’s to say nothing of the distinct possibility that 2020’s deluge of issuance ends up creating a debt burden which isn’t sustainable for some companies.

Read more: Albert Edwards Predicts Zombie Apocalypse

In any event, it matters not when investors can count on the Fed backstop, which some argue makes investment grade corporate bonds (as well as fallen angels) akin to GSE obligations.

High-grade funds took in $7.75 billion in the week ended July 22, Lipper said Thursday. That makes 15 consecutive weeks of inflows.

Out of the nearly $109 billion which fled IG funds during the worst weeks of the panic, more than $93 billion has returned over the last four months. Last week was the fifth-largest weekly inflow into blue-chip debt funds on record, Lipper’s data shows.

Meanwhile, high yield funds took in more than $3.9 billion over the week. When considered with the previous two weeks’ combined ~$3 billion haul, the fourth-largest outflow ever on Lipper’s numbers (seen during the first week of the third quarter) is now negated — and then some.

Additionally, from where I’m sitting, $3.9 billion looks good enough to take the number ten slot on the list of largest weekly high yield inflows, which means 2020 now occupies 7 of the top 10 spots.

This year also “boasts” some of the worst weekly outflows from junk funds.

All told, IG and HY funds raked in $11.6 billion on Lipper’s data, good for the best week since early June.


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