“Amid stock-market volatility and low Treasury yields, investors are pouring cash into junk bonds,” writes Nicole Bullock in today’s Wall Street Journal Online.

“The sector is seeing a flood of cash after weeks of relentless inflows into high-yield mutual funds. Meanwhile, prices of outstanding issues have risen, and bonds are tougher to find as the volume of new issues has failed to keep pace with demand.”

” ‘There’s a shortage of yield, but there’s also a real shortage of buyable bonds in both high-yield and investment grade,’ said Chris Towle, a partner and portfolio manager at Lord Abbett & Co. ‘This is very unusual. It’s the first time in many years where demand for all kinds of bonds is clearly outstripping supply.’ “

“On Monday, Tesoro Petroleum Corp. sold $375 million of senior secured notes in the Rule 144a market via lead manager Goldman Sachs. Strong interest enabled Tesoro to offer less yield than indicated originally. However, it also sold somewhat less in bonds than had been indicated and plans now to borrow more in lower-yielding secured bank debt, according to people familiar with the situation.”

“During the first quarter of this year, high-yield bond funds drew inflows of about $10.5 billion, close to the $11.7 billion total for all of 2002, according to AMG Data Services, based in Arcata, Calif. In the past six weeks, nearly $6.7 billion has poured into the market.”

“As demand has swelled, buyers have bid bonds higher in the secondary market, lifting some distressed debt issues well off their lows and pushing others to premiums. In the absence of a credit event like a ratings upgrade, many existing bonds have little to no upside left, analysts say.”

“Meantime, after a swell of deals early in 2003, issuance recently has dropped, creating a supply-demand imbalance.”

“Some companies moved in January and February to sell big issues, assuming that the looming war with Iraq would check demand or push yield margins to Treasurys — or spreads — wider, making it relatively more costly to tap the market. Among those selling offerings were Georgia-Pacific Corp., TRW Automotive Inc. and Crown Holdings Inc.”