This paper employs data on corporate bond mutual fund flows to study investors’ exposure to interest rate risk. We document that following a decrease in the interest rate, investment-grade bond funds receive large inflows whereas this is not the case for high-yield bond funds. We show that this is because investment-grade bonds have a longer duration than high-yield bonds and are primarily exposed to interest rate risk, while high-yield bonds are mostly exposed to credit risk. Moreover, as lower rates lead to lower yields, investors buy longer-maturity bonds in order to preserve yield targets. In contrast, when the interest rate becomes higher, investors move away from long-term bond funds to short-term bond funds. A higher interest rate implies higher interest rate risk, leading to more capital losses for long-term bonds.