Investment-Grade Bond Funds: Outflows in the Week Ended June 24
As yields rose, prices of investment-grade bond ETFs fell due to the inverse relationship between prices and yields. The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) fell 1.4%.
Yields on investment-grade corporate bonds fell to a low of 2.84% by mid-April. These low levels led US corporates and financials, apart from Yankee issuers, to throng the primary market in the US.
Investment-grade corporate bonds worth $20 billion were issued in the primary market in the week ended June 26, 2015. This was 6.2% less than the previous week’s issuance worth $21.325 billion.
US corporates dominated high-grade bond issuance in the week, making up 58.5% of all issues. Meanwhile, US financials accounted for 15.3% of all issues.
Investment-grade bond yields rose on the last day of trading last week as Greece’s creditors conditionally offered it financial aid to the tune of 15.5 billion euros.
Market demand for the seven-year Treasury notes was stronger in June at 68.5% of total accepted competitive bids, compared with 65.8% in May.
Yield on five-year Treasury notes in the secondary market fell marginally lower following the auction. It ended at 1.69% on June 24, down two basis points from the previous day.
Unlike overall demand, market demand for two-year Treasury notes rose from May. It was 62.8% of the competitive accepted bids in June—compared to 59.5% at May’s auction.
The security’s interest payments rise and fall depending on prevailing market rates. As a result, floating-rate notes have near zero interest rate risk.
Overall demand for the 52-week Treasury bills tanked at the June auction for the second month in a row. The bid-to-cover ratio dived 9% to 3.4x month-over-month
Due to higher market demand for 26-week Treasury bills, the share of primary dealer bids dived to 47.8% of the auction from 67.4% in the previous week.
Market demand for 13-week Treasury bills rose from the previous week. The percentage of indirect bids rose to 21.2% of the accepted bids, up from 15.7% a week ago.
Market demand for the four-week Treasury bills rose last week after tanking in the previous week. The percentage of indirect bids rose to 27.5% of the total auction quantum.
US Treasury yields, especially those on long-term securities, rose with the hope that Greece would accept this eleventh hour deal.
The US leveraged loans market saw an allocation of $17.5 billion worth of senior loans in the week ending June 26. This was 32.3% higher than the $13.2 billion priced in the week ended June 19.
Four CLO deals totaling $1.9 billion came through in the week ended June 26—a little lower than $2.0 billion in the previous week.
Investor flows in high yield bond funds returned to positive territory after witnessing outflows for two successive weeks.
Although the quantum of issuance rose in the week ended June 26, it was still lower than earlier in 2015, as yields have run up quite a bit. Most junk bond issuers were Caa/B rated.
According to data from S&P Capital IQ/LCD, dollar-denominated high yield debt amounting to $5.55 billion was issued in the week ending June 26.
A breakdown in negotiations led to Greece missing its payment due to the IMF on June 30. US equities reacted negatively to these developments.
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