The U.S. financial market is witnessing a remarkable wave of capital flowing into funds holding high-quality corporate bonds. This trend underscores strong investor confidence, even as indicators point to a cooling economy.
According to data from EPFR, between July 30 and August 6, U.S. ETFs and mutual funds investing in investment-grade corporate bonds attracted net inflows of approximately USD 11.6 billion. JPMorgan noted that this was the fifth-largest weekly inflow in history and the highest since late 2020.
The surge in inflows has come despite recent reports showing that U.S. economic growth and the labor market have slowed in recent months. In addition, large-scale tariffs imposed by President Donald Trump on multiple trading partners officially took effect on August 7.
However, sentiment has been buoyed by a series of recent trade agreements with Japan, the United Kingdom, and the European Union. Sarang Kulkarni, Lead Portfolio Manager for Global Credit at Vanguard, stated: “As market conditions stabilize, some of those negative risks are fading.”
Borrowing costs for U.S. investment-grade companies have fallen sharply since April, when yields spiked due to Trump’s tariff announcement, which roiled the markets. The spread between corporate bonds and U.S. Treasuries is now around 0.8 percentage points — close to the lowest levels since the late 1990s.
The corporate bond rally has been accompanied by strong gains in other risk assets. U.S. stocks have repeatedly hit record highs, while high-yield bonds and leveraged loans have also benefited from robust inflows, largely supported by recent trade agreements.
Despite the upbeat market momentum, some experts caution that current valuations may be overly optimistic compared to the economic challenges ahead. Mike Riddell, Fund Manager at Fidelity International, warned: “U.S. growth is likely to weaken significantly compared to the first half of the year.”
He added that risk assets such as corporate credit and equities are “priced for very low volatility, almost ignoring the possibility of shocks.” Riddell concluded: “I think the market is overestimating the outlook for global growth right now.”
Tiếng Việt
English
