High-Yield Bond Funds Saw Large Outflows; Yields, Spreads Fell
Investor flows into high-yield bond funds
Investor flows into high-yield bond funds last week were negative for the second consecutive week, and the quantum of outflows was large.
According to Lipper, net outflows from high-yield bond funds totaled $2.5 billion in the week ended August 3, 2016. In the previous week, high-yield bond funds saw outflows of $175 million.
Even with the outflows last week, high-yield bond funds have witnessed year-to-date inflows of $7.1 billion.
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Yields and spreads analysis
Yields on high-yield debt and spreads between high-yield debt and Treasuries both fell over the week ended August 5, 2016. High-yield debt yields, as represented by the BofA Merrill Lynch U.S. High Yield Master II Effective yield, fell 7 basis points and ended at 6.7% on August 5.
Like yields, the Option-Adjusted Spread (or OAS) also fell last week. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread fell 15 basis points from last week to end at 5.5% on August 5.
Returns on high-yield debt indexes, mutual funds, and ETFs
Bond yields and prices move in opposite directions. With yields falling, returns on high-yield debt rose in the week ended August 5, 2016. The BofA Merrill Lynch U.S. High Yield Master II Index rose 0.5% over the week. Returns in 2016 were positive, with the index up by 13.0% year-to-date.
Mutual funds such as the American Funds American High-Income Trust – Class A (AHITX) and the PIMCO High Yield Fund – Class A (PHDAX) provide exposure to high-yield debt. AHITX and PHDAX rose 0.3% and 0.5%, respectively, week-over-week.
Popular ETFs that provide exposure to high-yield debt rose over the week. The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) rose 0.2%, and the SPDR Barclays Capital High Yield Bond ETF (JNK) was almost flat for the week ended August 5.
In the primary market, Albertsons, SBA Communications (SBAC), CNH Industrial N.V. (CNHI), and Adient Global Holdings, a wholly owned subsidiary of Johnson Controls (JCI), were some of the large issuers of junk bonds.
In the next part of this series, we’ll analyze the primary market activity in leveraged loans.