Junk Bonds See Highest Inflow Ever
US-based junk bond funds generated their highest inflows since record keeping began in 1992, according to funds flow data tracked by Lipper that showed high-yield bond funds attracted $5 billion in net inflows this week.
Junk bonds that pay high yield to bondholders as the borrowers don't have any other option. Junk bonds are typically rated 'BB' or lower by Standard & Poor's and 'Ba' or lower by Moody's. In short, junk bonds pay high yields, but they also carry higher-than-average risk of companies defaulting on the bond.
Generally, average yields on junk bonds have been 4-5 percent more than U.S. Treasuries. Currently, the yield for 30-year treasury bonds stand at 2.70 percent.
The recent surge in junk bond investment highlights the dramatic shift in sentiment and ease of anxiety as recent economic data indicates that the U.S. economy is doing well despite weak global markets.
A recent Commerce Department report said that consumer spending climbed in January by the most in eight months.
Another data from the U.S. Institute for Supply Management showed that new factory orders were expanding. Meanwhile, the U.S. nonfarm payroll numbers topped expectations. Total nonfarm payroll employment increased by 242,000 in February, and the unemployment rate was unchanged at 4.9 percent, according to a release from the U.S. Bureau of Labor Statistics.
Thus, on the back of strong economic data, the US junk space could continue to be in the limelight as investors continue to look for safer assets in the junk market.
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