There Was A Mad Rush Into Junk Bonds This Week

Beijing Xierqi Station Crowd

Big flows into stock market mutual funds and ETFs continued this week, while investors continued to redeem money from funds invested in government bonds.

BofA Merrill Lynch Chief Investment Strategist Michael Hartnett points out that “in [the] past four weeks, equity inflows of $47 billion outstrip [year-to-date] bond inflows of $45 billion.”

Despite outflows from government bonds, though, riskier fixed income markets – like high yield debt (junk bonds) and leveraged loans – had their biggest week ever as investors piled into higher-yielding products.

High-yield bond funds expanded assets under management by a record $5.4 billion in the week ended July 24, while leverage loan funds took in a record $2.2 billion.

Below is a complete breakdown of this week’s flows, via Hartnett:

Asset Class Flows

Equities: $8.0bn inflows ($4.5bn via LO funds)

Bonds: $4.4bn inflows (largest in 11 weeks)

Commodities: $0.5bn outflows (24 straight weeks)

MMF: $12bn outflows ($130bn outflows YTD)

Fixed Income Flows

Record $5.4bn inflows to HY bond funds (on absolute terms)

Record $2.2bn into leveraged loan funds (57 straight weeks) (on absolute terms)

First inflows to IG funds in 7 weeks (albeit small $0.4bn)

But $1.1bn out of EM debt (9 straight weeks and longest outflow streak since Jan’09)

Chunky outflows from Munis ($1.1bn and 9 straight weeks)

10 straight weeks of outflows from MBS ($0.3bn)

$0.7bn out of govt/tsy

Equity Flows

$0.8bn inflows to EM equity funds = largest in 10 weeks but note chunky $0.3bn outflows from Brazil

Since EM Flow Trading Rule gave a “buy” signal on 6/27, MSCI EM up 512bps

Big $1.6bn inflows to European equity funds

Solid inflows to US ($4.3bn) and Japan ($0.6bn)

By sector, financials ($0.8bn) and healthcare ($0.9bn) are clear winners this week 

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