Capital Markets

What Sells in a Recession: Junk

Money invested in speculative-grade bonds grows for the 11th week in a row.
Stephen TaubFebruary 13, 2009

The junk bond market is slowly becoming more hospitable to issuers. For the week ended Wednesday, U.S. junk bond mutual funds reported $534 million in net inflows, according to Reuters, citing AMG Data Services.

It was the 11nth straight week of net inflows to these funds, the report said. The week before, net inflows amounted to $725 million.

The trend suggests that investors may be warming up to the most risky corporate credits. If that, that would be good news for companies with below-investment-grade credit ratings that want to raise money, since mutual funds are generally big buyers of new issues.

In January, junk-bond issuers in the United States raised $4.3 billion, according to the Associated Press, citing data from Dealogic. It was the largest total monthly issuance since June.

In fact, the eight deals in January were more than the previous four months combined, according to the report. Still, the total was 40 percent below the level reached in January 2008.

“By historic terms, (volume) remains rather anemic,” Diane Vazza, head of global fixed-income research for Standard & Poor’s, told the AP. Yet several months ago, during the height of the credit crisis, investors would have laughed at companies trying to peddle a new junk bond issue.

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