After a dismal showing in March and the first week in April, taxable bond funds are now back in favor. During the six-week COVID-19 bond market meltdown, which continued through the fund-flows week ended April 8, 2020, investors were net redeemers of taxable bond funds (including ETFs). The largest weekly net outflows on record for the group occurred on March 25 (-$62.0 billion) and March 18 (-$55.9 billion), respectively.
During the selloff, investors worried about individual firms’ credit quality and market liquidity as the global economy entered a state of lockdown, but their fears were assuaged after the Federal Reserve stepped in and agreed to buy corporate bonds on March 23 and non-investment grade corporate debt on April 9.
Despite a recent stretch of net inflows, the group has handed back a net $118.6 billion year to date, still a record amount for any full-year period. Nonetheless, it appears that the tide has changed. For the fund-flows week ended May 27, 2020, investors padded the coffers of taxable bond funds to the tune of $12.5 billion, the group’s seventh straight week of net inflows and the third largest on record.
With investors’ renewed search for yield, both corporate investment-grade debt funds and corporate high-yield bond funds have been the recipients of investors’ money, with corporate investment-grade debt funds attracting some $7.5 billion for the fund-flows week ended May 27. This was the seventh consecutive week of net inflows for the group and their second largest on record, while corporate high-yield bond funds took in some $6.3 billion for their ninth consecutive week of net inflows and third largest on record. Ironically, corporate high-yield bond funds did not suffer the huge redemptions their investment-grade counterparts did, with high-yield bond funds taking in $16.7 billion year to date.
