The riskiest segments of the corporate fixed income market are experiencing a massive influx of investor capital in recent weeks as traders bet the Federal Reserve will cut interest rates at its September meeting and continue with a swift rate-cut cycle.

U.S. corporate bonds rated CCC or lower — which are at the bottom of the credit rating scale and represent companies with a high likelihood of default — have rallied nearly 3% this month. This surge positions junk bonds for their best monthly performance to date in 2024.

Disinflation Fuels Rate-Cut Frenzy: High-Yield Bonds Benefit

Following the lower-than...