April 2, 2003 — The winning streak that began for high-yield bond funds late last year continued into the first three months of 2003 as money flooded into the category.
Funds that invest in so-called junk bonds returned 5.4% on average in the first quarter, preliminary figures from Standard & Poor’s showed. All 354 high-yield bond funds tracked by S&P ended the period in the black.
At the same time, investors poured about $8.6 billion into these products between January and March, including some $3.9 billion last month alone, according to AMG Data Services, which tracks fund cash flows.
“It’s been a fabulous market,” said Margaret Patel, who manages the Pioneer High Yield Fund/A (TAHYX).
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Junk bonds have been helped by low interest rates, which makes their yields look more attractive compared to other fixed-income investments, like Treasuries or money-market funds, money managers said.
Investors have also gained confidence in high-yield bonds as default rates for the securities have stabilized or declined in recent months, observers said. The 12-month rolling average default rate for domestic junk bonds stood at 6.9% on March 10, down from 10.2% in April 2002, S&P data showed.