February 7, 2019 / 10:56 PM / 13 days ago

UPDATE 1-U.S. fund investors buy most junk bonds in more than 2 years -Lipper

 (Adds details on funds, byline, table)
    By Trevor Hunnicutt
    NEW YORK, Feb 7 (Reuters) - U.S. fund investors flooded
high-yield bonds with cash in recent days, Lipper data showed on
Thursday, after the Federal Reserve's rate-hike holiday.
    High-yield "junk" bond funds pulled in nearly $3.9 billion
during the seven days ended Feb. 6, the most since July 2016,
the research service said. The debt is issued by companies seen
as less likely to repay, and they offer steeper yields to entice
investors.
    The U.S. Federal Reserve's Jan. 30 statement that it would
be "patient" on further interest rate hikes halted a trend to
higher borrowing costs that until recently has proceeded like
clockwork, with Fed hikes once a quarter since spring 2017.
 That patience would seem to reduce the likelihood
that rising rates would push the economy into a tailspin and
make the most indebted borrowers deadbeats.
    "We're seeing the 'we missed the rally' blues from retail
investors," said Tom Roseen, head of research services for
Lipper. "People are willing to put money back to work in the
fixed-income markets. It makes sense to me with the Fed saying
they're not going to raise rates any longer."
    Companies with risky credit profiles brought $11.7 billion
in new high-yield debt to market in the first month of the year,
after a nearly six-week dry spell at the end of 2018.
 A widely followed ICE BofAML high-yield index,
meanwhile, is at a record high price level.
    One area within the riskier bond universe continues to be
under pressure: leveraged loans. Lipper's leveraged loan
category recorded $742 million in withdrawals for the week,
marking a 12th straight week out of fashion.
    BlackRock Inc chief investment officer of global
fixed income Rick Rieder told Reuters on Monday that Fed
patience means there is less value in the loans' feature of
paying investors more when rates rise.
    "You'll get more defaults in the next couple of years,"
Rieder said. "You can get your yield in other places."
    Short U.S. Treasury funds recorded $1.5 billion of
withdrawals in the latest week, the most since March 2016. The
category nearly doubled in size in 2018 on caution around rates.
    U.S. money-market funds gathered $20.5 billion during the
week, the most so far this year, Lipper said. Some money fund
yields are now running above those of short-term Treasuries,
which fell on the Fed news.
    "Longer term, the yield matters," said Peter Crane,
president at Crane Data LLC, which focuses on money markets. "It
always matters."
    The following is a breakdown of the flows for the week,
including mutual funds and ETFs:     
 Sector                    Flow Chg  % Assets  Assets     Count
                           ($blns)             ($blns)    
 All Equity Funds          2.632     0.04      7,062.872  12,165
 Domestic Equities         -1.566    -0.03     5,012.415  8,641
 Non-Domestic Equities     4.198     0.21      2,050.458  3,524
 All Taxable Bond Funds    6.492     0.23      2,790.926  5,992
 All Money Market Funds    20.505    0.71      2,933.766  1,007
 All Municipal Bond Funds  1.150     0.27      436.201    1,415
 
 (Reporting by Trevor Hunnicutt
Additional reporting by Richard Leong
Editing by Susan Thomas and James Dalgleish)
  
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