The high-yield bond market continued its rebound last week, as 10 deals worth $2.7 billion were priced by Thursday.
A groundswell of interest from retail investors led the charge. For the second consecutive week, high-yield mutual funds recorded inflows in excess of $1 billion.
"It represents a sea change in investor sentiment extending to retail as well as institutional investors," said Robert Adler, president of AMG Data Services, based in Arcata, Calif.
Investors sank $1.019 billion into high-yield bond funds last week and $1.185 billion a week earlier, according to AMG. That was after months of bloodletting from high-yield funds.
As liquidity picked up, the type of companies able to issue junk bonds broadened.
A month ago, only a couple of deals trickled in each week, mostly for BB-rated companies in noncyclical industries. But most of the issues that priced last week were rated in the B range.
The telecommunications sector was particularly active. Three telecommunication companies issued junk bonds last week worth a total of $825 million. More speculative telecom issues have not yet made a comeback.
"We haven't seen anything from the riskier players, such as Internet companies or the early stage venture capital companies," said Martin Fridson, Merrill Lynch & Co.'s chief high-yield strategist.
Mr. Fridson also said zero-coupon bonds were less popular than senior notes, indicating that investors are still weighing their risks in this market.
"But generally in the last couple of weeks we saw a flight from quality," Mr. Fridson said.
The calendar remains sparse compared with earlier this year. Merrill Lynch estimates that companies with road shows under way represent about $900 million in potential new issuance.
In the bull market for junk bonds in the first half of the year, the calendar sometimes hit $13 billion.