Quality corporate bond funds start 2022 with biggest weekly inflows in 6 months

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Investors may have kicked off 2022 by offloading tech stocks, but they’ve also poured into high-quality U.S. corporate bond funds, according to data from Refinitiv Lipper.

Classic investment-grade corporate bond funds drew an inflow of $ 2.9 billion in the week ending Thursday, the biggest weekly inflow in the industry since early July, according to Refinitiv Lipper.

Overall, US debt and equity funds drew $ 13.4 billion for the week, according to the data, despite a massive selloff that hit the technology-heavy Nasdaq COMP composite index,
-0.73%
particularly hard.

Investors ditched growth stocks after the Federal Reserve minutes from its December meeting showed policy normalization, including higher rates, could be considered sooner than expected just a few weeks ago .

Higher borrowing costs could become particularly troublesome for growth stocks that are highly valued on the promise of high future earnings. The Nasdaq on Wednesday posted its worst start to the year since 2008 and was down 3.6% for the week, through Thursday.

Stricter borrowing terms may also pinch risky businesses, although U.S. companies have seen a record-breaking wave of borrowing, soaking up low-cost finance during the pandemic.

Yet junk bonds tend to come under pressure when stocks become volatile, even across the S&P 500 SPX index,
-0.22%
includes many of America’s most profitable companies, while junk bonds historically fund companies considered to have a relatively high risk of default.

Junk-bond ETFs tend to be among the first things corporate debt investors sell when volatility rises, as they trade instantly, while “spot bonds” or actual debt issued by corporations , can sometimes take days for a seller and a buyer to find the right price to complete a transaction.

See: What trades more in a day than most Dow stocks? It’s a big junk-bond ETF

The large iShares iBoxx $ High Yield Corporate Bond ETF HYG of the sector,
-0.19%
attracted $ 761 million for the week through Thursday, according to Refinitiv Lipper. Shares were on track for a weekly decline of 1.1%, according to FactSet.

However, the smaller SPDR Bloomberg High Yield Bond ETF JNK,
-0.25%
saw $ 411 million in cash outflows for the week. The stocks were on the verge of losing 1% for the week.

According to data from BondCliq, the US junk-bond market of more than $ 1.5 trillion in “cash” was also in turmoil until Thursday. This graph shows the debt issued by Ford Motor Co. F,
+ 0.13%,
Occidental Petroleum Corp OXY,
+ 1.54%
and Charter Communications Inc. CHTR,
-1.38%
like the most active unwanted bonds in a sea of ​​red during this stretch:

High yield bonds, rated BB + to D, collapse from 2022.

BondCliq

“After a record year of recovering earnings, favorable monetary / fiscal policy, improving credit quality and tightening spreads over 15 years, conditions are set to change in 2022,” a team led by Brian Zinser, strategist chief corporate bond at Mizuho Securities, wrote a client note on Thursday.

Read: Corporate debt investors brace for tighter financial conditions in 2022


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