Investors have poured about $16 billion into U.S. corporate bond funds this month, highlighting how signs of easing inflation helped brighten sentiment after a brutal sell-off for much of 2022. doing.
Funds holding higher-rated bonds attracted $8.6 billion in new client money in the month ending Nov. 23, while funds focused on riskier junk bonds posted $7.1 billion in net I recorded the influx. If the trend holds up in the final week of November, the combined figures are set to be the highest monthly inflow since July 2020, according to data provider EPFR.
The surge in credit fund inflows came as Wall Street markets showed a late-year rally after data released in early November showed the pace of consumer price growth had begun to slow. and raised hopes that the Federal Reserve would soon decelerate its aggressive interest rate. rise.
About $5 billion flowed into U.S. corporate bond funds before the Nov. 10 Consumer Price Index report was released, but another $10.9 billion shifted to vehicles in the following two weeks, EPFR data show. It has been. Corporate bonds also rose on the inflation report, with the Ice Data Services index pushing high-grade debt up 4.6% from him, narrowing the decline to about 15% in 2022.
Many companies took advantage of cheap money to refinance and issue new debt during a period of pandemic stimulus. However, the Fed has since taken the lead in tightening monetary policy to keep inflation in check, raising US interest rates from near zero to the target range of 3.75-4%. In turn, there are growing fears that central banks and their allies will twist the screw and lead the economy into recession, squeezing consumer spending in the same way that businesses face much higher borrowing costs.
The CPI report showed that inflation fell from 9.1% in June to 7.7% in October, helping to at least provide a glimmer of hope that interest rate rises may begin to slow. increase. The market is betting that U.S. interest rates will peak at 5% next June before they start to fall, having previously hit a high of 5.3%.
“I think investors are saying, . . . ‘Rates aren’t going to go up, they’re going down, and sooner or later we want to get through them,'” said Marty Fridson, chief investment officer at Lehman Rivian Fridson Advisors.
Fridson said some investors may be keen to secure higher yields after this year’s sharp sell-off has sent yields skyrocketing. The average yield on the Ice Index for high-quality corporate bonds is 5.4%, down from his peak of over 6% in October, but at the end of 2021 he’s well above 2.4%.
Still, November’s bright money flows data is a drop in a sea of exits from riskier US corporate bond vehicles since early January. About $52 billion has flowed out of high yield funds so far in 2022. Moderated by net inflows of high-grade bonds, overall outflows have hit $44 billion year-to-date.
“October US inflation remains a rather unsavory number, generating a significant degree of irrational optimism,” warns Cameron Brandt, research director at the EPFR.
“We have a pool of investors who have been roaming a yield-depleted environment for nearly a decade,” he added.
