Week after week, it’s the same story: investors’ appetite for corporate credit is insatiable.
Although equities grabbed most of the headlines over the past several sessions, it’s worth noting that inflows into investment grade bond funds and ETFs just hit a fresh record, totaling nearly $15 billion in the week through September 2. That eclipsed the previous mark of $14.88 billion logged earlier this summer.
Lipper data showed high-grade funds taking in $10.7 billion over the period. It was the 21st consecutive haul, and brings the total since mid-April to nearly $137 billion.
The uninterrupted inflows are in no small part a response to the Fed’s unprecedented backstop, unveiled in late March when corporate America found itself staring into the abyss amid the panic. Investors quickly seized on the opportunity to front-run Jerome Powell’s buying, and now seem content to invest alongside the Fed, confident that policymakers won’t chance another selloff.
Next week is expected to see a deluge of new corporate supply. September’s IG slate comes on the heels of a record-shattering year for high-grade issuance. Blue-chip US borrowers took advantage of the favorable conditions created by the Fed’s inaugural foray into corporate credit to borrow nearly $1.5 trillion in the first eight months of the year.
As noted earlier Saturday, August ended up seeing nearly $140 billion in new sales, well more than dealers expected. September should be good for another $140 (give or take).
In a testament to demand, the slowdown in primary market activity over the past week found offerings from Mondelez, W.R. Berkley, and Host Hotels (among others) massively oversubscribed.
Meanwhile, cash continues to come off the sidelines. Total assets in US money market funds dropped for a fourth week, ICI said.
$45.2 billion fled “cash” in the week through Wednesday. It was the second-largest outflow of 2020, trailing only tax week (recall that the Trump administration extended the tax deadline in the US by three months from mid-April to mid-July).
The breakdown showed government funds shedding $38.9 billion. As noted here on multiple occasions over the summer, this cash isn’t going into equities, or at least not into equity funds. The largest stock ETF (i.e., SPY) saw five straight months of outflows through August, for example.
It’s safe to say some of this “dry powder” has found its way into corporate credit, although I suppose you might also suggest a portion (that belonging to younger investors) is being put to “work” in Robinhood accounts and/or burned up as premium — one OTM tech lottery ticket at a time.