There's about US$113 billion that seems to be betting on agrowth slowdown instead of higher interest rates.

That's how much mutual-fund investors have poured intoinvestment-grade bond funds this year—more than they've deployed inequities, junk-rated securities, or money-market funds, accordingto data compiled by Wells Fargo & Co. Investors have beenattracted to the debt's relatively safe credit quality, fuelinggains of 6.8 percent for highly rated U.S. company bonds in2014.

Here's the catch: Yields on investment-grade corporate bondshave dropped to within half a percentage point of their all-timelow and are now almost as sensitive as they've ever been tointerest-rate increases.

The trade is questionable to some, given the FederalReserve has said it plans to lift its benchmark rate next year fromnear zero, where it's been since the end of 2008. Analysts forecastthe U.S. economy is strengthening, and these bond buyers are atrisk of losing when borrowing costs rise.

“People have been lulled to sleep from 30 years of positivereturns,” William Eigen, head of the absolute return andopportunistic fixed-income group at J.P. Morgan Asset Management,said at a press briefing yesterday at the firm's New York office.“You have to be more careful today than ever before inhistory.”

Mutual-fund investors have plowed more than $3 billion intoinvestment-grade bonds in each of the past eight weeks, adding $4.2billion to their holdings in the week ended Nov. 12, Wells Fargodata show. There have been $20 billion of withdrawals fromjunk-bond funds and $58.8 billion of deposits into stock funds thisyear.

Yields on investment-grade corporate bonds have shrunk to 3.14percent from 3.37 percent at the end of last year, according to aBank of America Merrill Lynch index that includes debt of AppleInc. and Verizon Communications Inc. Those on junk bonds, which areless sensitive to interest-rate moves, have held at about 6.4percent.

Of course, Wall Street has been ratcheting back its expectationsfor how much interest rates can really rise in the face of loweroil prices, slowing growth in China, and the threat of deflation inEurope. Credit investors didn't name rising borrowing costs as oneof their top three concerns in a November survey by Bank of AmericaCorp.

Investor Concerns

“More investors are now concerned about each of China, oilprices, and slow recovery than the upside risk of higher interestrates,” Bank of America analysts wrote in a Nov. 10 note.

As investors worry more about other threats, the debt'sinterest-rate risk has climbed. Its effective duration, a gauge ofhow susceptible the notes are to losses when borrowing costs rise,is almost equal to the highest ever, and 10 percent above thedecade-long average.

The bond rout that took place during two months lastyear—prompted by concerns that the end of the Fed's securitiespurchases would lead to a rapid rise in rates—serves as a reminderof potential losses.

Investment-grade corporate securities plunged 5 percent in Mayand June 2013, their worst two-month performance since the depthsof the 2008 financial crisis, as yields on 10-year Treasuriesclimbed 0.8 percentage point, according to Bank of America MerrillLynch index data.

If the global economy keeps bumping along without a dramaticsurge in growth, that $113 billion may emerge relatively unscathedor even prosper. However, if the outlook picks up, these notes maybe among the hardest hit.