Investors trying to gauge the strength of the risk-on shift that gripped markets Thursday should look no further than two of the biggest high-yield credit exchange-traded funds.

As softer-than-anticipated inflation data sparked the best day for stocks in more than two years and sent around $13.4 billion into equity ETFs, products targeting junk bonds were seeing unprecedented demand. 

The iShares iBoxx High Yield Corporate Bond ETF (ticker HYG) lured $1.15 billion in new cash for the strongest inflow since March and the sixth biggest on record. The SPDR Bloomberg High Yield Bond ETF (JNK) added more than $1 billion for its best-ever inflow.

It was the largest combined influx the two ETFs, which are the biggest in the category, have ever received.

The strength of the flows could be an important indicator for where markets go from here. The weaker-than-expected inflation data has raised hopes that the Federal Reserve will be able to ease off from the relentless monetary tightening campaign that has rattled almost every asset class in 2022. 

“People finally see the Fed’s job of tightening as nearly over,” said Peter Tchir, head of macro strategy at Academy Securities. “Inflation was quite weak, especially if you account for how overstated the rent component is — so that created general risk on.”

HYG and JNK both jumped 3.1% on Thursday, the most since April 2020 — when the Fed pledged to support the credit market amid the Covid-19 crisis. The Thursday influx takes the trailing one-month inflow for the two funds to about $7.7 billion, according to data compiled by Bloomberg. 

However, with price growth still historically high and interest rates now elevated, fears for the business cycle are growing and continued appetite for riskier assets isn’t assured.

“I’m in the ‘enjoy the ride for now’ camp but think we will switch from ‘soft landing euphoria’ to ‘oh my god, the hard landing is inevitable’ doom,” said Tchir. “But that isn’t today’s trade.”

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