Investors are pumping money into junk bond funds at record rates, Bloomberg Businessweek reports.
According to Bank of America Merrill Lynch's Michael Hartnett, $5.4 billion flowed into speculative-grade bonds during the week ended July 24, while leveraged loan funds took in a record $2.2 billion. This comes as investors pulled $1.8 billion from investment-grade bond funds, according to EPFR Global.
Junk's big snapback also comes just a month after speculative-grade funds globally registered their biggest weekly outflow ever - $6.8 billion - in the week ended June 26. Junk madness is visiting Europe, where almost half of June's $9.7 billion outflow from high-yield funds has now been undone.
Borrowers globally have sold $305.5 billion of junk bonds this year, which is well north of the $206.5 billion placed in the same period last year, Bloomberg data show.
"Default rates are close to historic lows and are expected to stay that way for the foreseeable future," Gregory Kamford, a credit strategist at RBS Securities, told Abramowicz. "We prefer high yield versus investment-grade due to the extra coupon cushion it provides."
With demand so hot for junk, there are signs of complacency. Median leverage for high-yield issuers has risen to 3.92 times from 3.42 times at the end of 2011, according to a report by Morgan Stanley credit strategists led by Adam Richmond. Read more.