U.S. Junk Bond Funds to Add Another $6 Billion as Appetite Grows

(Bloomberg) -- Investors’ insatiable appetite for junk bonds is growing as retail funds are expected to add about $6 billion for the week ending May 27 -- the third-biggest amount on record and the ninth straight week of inflows.

JPMorgan Chase & Co. analysts reported the figure in a note on Thursday, citing Refinitiv Lipper data. Final numbers are expected later on Thursday.

The inflows began after the Federal Reserve’s move to buy corporate bonds on March 23, and then accelerated after the central bank’s historic move to begin buying some speculative-grade corporate debt April 9.

U.S. high-yield funds then reported the biggest inflow on record with $7.66 billion for week ending April 15.

The primary market has been flooded with new issues as borrowers hit by the pandemic shore up liquidity. In April and May almost $75 billion has priced, according to data compiled by Bloomberg.

May has seen $37.4 billion so far, and another $5 billion is slated to price before the end of this week, bringing the month’s volume to almost $42 billion. That would make it the busiest month since March 2017 when about $42.2 billion priced.

Junk bonds have rallied with yields dropping 98 basis points this month to close at 7.07% and spreads coming in 101bps to close at +643 on Wednesday.

Leveraged loan funds may see their first inflow in six weeks, with an estimated $30 million.

The last time they saw an inflow it was for the week ended April 15, which also saw a $30 million increase. This would be only the fourth inflow of the year. Loans have seen more than $19 billion pulled from funds so far in 2020.

The loan market is starting to improve along with overall economic sentiment as states begin to reopen. Average loan prices have rose 2.43 cents in May to 88.40 cents on the dollar as of Wednesday. That’s a gain of 2.83% on the month, though returns for the year are still down 8.6%.

More deals are coming to market and some are seeing pricing tighten, including Segra’s $275 million incremental term loan that priced this week.

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