Investors disgruntled with paltry interest rates on the safest assets are pouring cash into junk bond mutual funds, betting that a recovering economy will lessen the risks of the securities.
U.S. junk bond mutual funds took in a net $927.8 million in the latest week, the 12th-biggest inflow on record, pushing total January inflows so far to nearly $2 billion, according to AMG Data Services.
In turn, buying by fund managers helped pull yields on junk bonds lower last week, with the KDP Investment Advisors index of 100 junk issues hitting a 52-week low of 10.23% early in the week. The yield edged up 10.32% by Friday.
Junk-rated companies have announced plans to sell more than $5 billion in debt this month and next in response to investors' growing demand.
Prospects for a recovering economy have added to the appeal of junk bonds.
Economic growth makes it easier for junk-rated companies to keep up with their hefty debt payments, reducing risk of default.