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Who is this market? The bond market rallies again as in 2012 (Part 1)

With two consecutive record weeks of inflows, many investors are asking what changed

Weekly fund flows are great momentum metrics that can show market strength or signal changes in investor sentiment. Just two weeks ago, the high yield bond market (HYG) saw inflows of just $12 million. Fast-forward two weeks to see almost $6 billion in inflows.

US High Yield Bond Fund Flows 2013-07-31Enlarge Graph

The weekly fund flows for the week ended July 26 saw a record inflow of 3.2 billion, the largest year-to-date inflow and the largest since October 2011. To put this in perspective, the single week reversed half of the outflows for the year. Year-to-date outflows are now $3.4 billion.

Why? What changed?

In short, not much—mainly time. We’re now closer to August, when the High Yield Bond Market (JNK) slows down while dealmakers go on vacation to their summer houses.

This means that issuers standing on the sidelines have a narrow window to issue. It also means that fund managers, who are still flushed with cash, have little time left to invest it before the market effectively hibernates during August.

Read on to read about the Fed’s quantitative easing tapering timeline

Continue to Part 2