Investors shoveled $1.34 billion into junk-bond mutual funds in the week through Wednesday, seeking to capture higher yields.
That's the biggest weekly cash infusion into junk, or high-yield, bond funds in at least five years, according to AMG Data Services, which began monitoring mutual fund flows in 1992.Investors jumping in now may have missed out on the biggest gains for these bonds, many fund managers and analysts said. Junk bonds, like stocks, have quickly recovered from a slump last month, and many bargains are gone, they say.
"We had a small window to buy securities at much lower price points. That window has shut." said Dan Charleston, who manages $360 million of high-yield bonds for J & W Seligman Co.
High-yield bonds, which are sold by companies with credit ratings below "Baa3" by Moody's Investors Service and "BBB-" by Standard & Poor's, are starting to lose some of their steam. They returned 0.545 percent this week, according to a basket of 863 bonds tracked by Merrill Lynch & Co. Last week, those bonds returned 1.0 percent.
Much of the sudden inflow come from so-called "market timers" who move quickly in and out of financial assets to reap the biggest gains. Many of these investors rushed to junk bonds in the wake of rallies in stocks and Treasuries, which rose as concerns about higher interest rates receded.
That's a contrast to late March and early April, when investors yanked a net $1.58 billion from high-yield funds during four-week period, according to AMG.
"Most of the market-timers may find they got whipped pretty good here, as opposed to sticking in for the long haul," said Jeff Hall, who oversees $30 million of junk bonds at the Investors Group in Winnipeg, Canada.
"I wouldn't say there are many good undervalued opportunities left," Hall said. "Things are pretty well picked clean."