The US investment-grade corporate bond market has recorded its largest weekly inflows in nearly five years, signaling investor confidence despite signs of an economic slowdown.
According to data from EPFR, exchange-traded funds (ETFs) and mutual funds focusing on highly rated US corporate debt attracted approximately $11.6 billion in inflows between July 30 and August 6. This marks the fifth-highest weekly inflow on record and the most significant since late 2020, per JPMorgan analysts.
The surge in demand comes amid mixed signals from the US economy. Recent reports show a cooling in both growth and hiring, and Donald Trump’s new round of tariffs on US trading partners went into effect last week. However, recent trade agreements with Japan, the UK, and the EU have helped ease broader concerns about a deepening trade war.
“As things have settled, some of those tail risks are fading,” said Sarang Kulkarni, lead global credit portfolio manager at Vanguard. He noted that many large corporations have taken steps to strengthen their balance sheets in recent years, improving overall corporate fundamentals.
Borrowing costs for investment-grade companies have fallen significantly since April, when Trump’s “Liberation Day” tariff announcement rattled markets. The credit spread — the yield premium investors require over Treasuries — has narrowed to 0.8 percentage points, approaching its lowest levels since the late 1990s.
This credit rally is part of a broader upswing across risk assets. Wall Street equities have continued to hit record highs, and appetite for high-yield (junk) bonds and leveraged loans has also strengthened.
Volatility in both equity and bond markets spiked in April but has declined steadily since then. Despite this, some analysts caution that markets may be underestimating future risks.
Mike Riddell, a fund manager at Fidelity International, warned that markets are too optimistic given the economic backdrop. “We’re likely to see substantially weaker US growth than in early 2025,” he said. “Risk assets like credit and stocks are pricing in very little volatility — or almost no chance that things go wrong.”
As investor optimism drives capital into corporate bonds, questions remain about whether market sentiment is aligned with the underlying economic reality.
