European Junk Bond Funds Get $1.3 Billion Inflow on ECB Policy

Investors plowed $1.3 billion into funds that purchase junk bonds in Europe this week in anticipation of Mario Draghi’s latest stimulus package.

“Markets were already bracing for some action in credit and credit flows for the past week confirmed this,” Bank of America Corp. analysts led by Ioannis Angelakis wrote in a note Friday, citing EPFR data as of the week ending March 9.

This was the third-straight week of inflows and the biggest deposit in fourth months, lowering net redemptions from junk-bond funds to about $6 billion this year. Funds that purchase investment-grade funds lost $52 million this week. The European Central Bank said Thursday it will expand its asset-purchase program to include investment-grade euro-denominated corporate notes. Total bond buying was increased to 80 billion euros ($89 billion) from 60 billion euros.

“The ECB decision will clearly have an effect on euro fixed income markets, starting with the corporate bonds that they will buy, but we expect to see a trickle down effect to the high-yield space,” said Colm d’Rosario, a money manager in London at Pioneer Investment Management Ltd., which oversees about 224 billion euros. “The choice for investors will be to buy investment grade at low yields or to buy high-yield bonds, and given we believe high yield fundamentals are still in reasonable shape, high-yield will be an attractive option.”

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