(Bloomberg) -- Investors are piling cash into the largest junk bond exchange-traded fund at the quickest pace in nearly three years amid a broad rebound in risk assets.

More than $2 billion flooded into the $17 billion iShares iBoxx High Yield Corporate Bond ETF (ticker HYG) last week, according to data compiled by Bloomberg. That was the biggest haul among fixed-income ETFs and the HYG’s largest weekly influx since November 2020.

The renewed appetite for HYG — which had been sitting on net outflows of nearly $1.2 billion prior to last week — arrives even though there have been several high-profile warnings about a coming wave of defaults and ratings downgrades. Despite the red flags, a series of strong economic prints such as Friday’s blockbuster May jobs report may have convinced investors that it’s safe to venture back into riskier credits, according to Wells Fargo Investment Institute’s Sameer Samana.

“One possible bull case is that the economy remains resilient today and investors may not need to worry about the recession until later this year,” said Samana, the firm’s senior global market strategist. “To us, that’s akin to picking up pennies in front of a bulldozer.”

HYG has climbed about 3.6% on a total return basis so far this year, after returns plunged 11% in 2022. That gain compares to a return of about 2.6% for the $91 billion iShares Core U.S. Aggregate Bond ETF (AGG), which tracks fixed-income markets broadly. 

Still, alarm bells are ringing despite the outperformance. Bloomberg Intelligence warns that credit metrics are eroding, while Deutsche Bank wrote last week that a wave of defaults is looming for US high-yield companies as borrowing costs soar.

To PGIM Fixed Income’s Lindsay Rosner, the outlook for the junk bond market isn’t unusually dire ahead of what she expects to be a garden variety default cycle. Even still, any pickup means that investors should be selective about which securities they’re buying.

“In terms of views on high yield, we still anticipate a benign default environment with very average defaults of 3%-4%,” said Rosner, the firm’s senior portfolio manager for multi-sector strategy. “It’s really important to be an active manager and not just take that average default, which you do in a passive ETF.”

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