- Corporate bond funds are collecting record inflows as investors race to lock in high yields, according EPFR data cited by the Financial Times.
- Meanwhile, the extra premium borrowers pay to pull in demand is at a multi-year low.
- High demand is spurring borrowers to refinance or extend their debts, Bloomberg reported.
US corporate debt has reached record inflows just months into 2024, as $22.8 billion has already flowed into bond funds this year, the Financial Times reported, citing EPFR data.
It's a reversal from the net outflows witnessed through the opening months of the past four years. Instead, investors are now flocking into these funds in a race for high yields — a sense of urgency is fueling this demand, as potential interest rate cuts loom over the market.
Demand has been so strong that the extra premium borrowers usually pay to attract buyers is at its lowest in two years, the FT said. And for riskier junk bonds, this so-called spread is at its lowest since 2007.
However, around four-fifths of this money targets investment-grade debt, with yields currently standing at 5.4%. Inflows are coming from all over, whether the investor be foreign and domestic, retail or institutional, according to the FT.
Higher-yielding junk bonds may also appear welcoming to investors, as the default rate among these corporate assets has leveled off to around 4% in recent months, Reuters reported. That despite earlier fears of a coming maturity wall.
While post-pandemic conditions kept traders largely out of fixed-income, risk-on sentiment resumed in force after the Federal Reserve's December hint that it could soon cut rates.
In recent months, this became less certain as inflation figures have come in hotter-than-expected, but markets still anticipate a rate cut in June. Meanwhile, Fed Chairman Jerome Powell recently indicated that three cuts were still on the table for this year.
The extra demand is also spurring borrowers to refinance their outstanding debt, with such transactions hitting record levels year-to-date, Bloomberg said. Others are also extending maturities.
