Investors keep providing liquidity to investment-grade bonds


Dec. 4 2020, Updated 10:52 a.m. ET

The highest fund flows since mid-February 2014

While issuers’ activity waned last week, many investors continued to pore over the new issues that hit the corporate bond market (LQD). Nearly $3.2 billion was invested in investment-grade corporate bonds—$700 million higher than the previous week’s $2.5 billion.

Fund flows are a great way to assess investors’ demand in the market. As you can see in the chart above, demand for corporate bonds was mostly upward-trending throughout the year, with the week ended February 14, 2014, recording the highest inflow for the year, at $3.4 billion. Higher demand was due to the strong fundamentals posted over the past few weeks. One-month fund flows for investment-grade bonds totaled $5.7 billion.

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Overall, the bond market recorded positive fund flows last week. The Vanguard Total Bond Market ETF (BND), which tracks the performance of a broad market-weighted bond index, posted a weekly inflow of $62.5 million. The one-month fund flows were also positive, at 64.2 million, showing that investors are drawn towards the safer fixed income asset class.

Investment-grade corporate bonds tradable equivalents, such as the iSharesIBoxx $ Investment Grade Corporate Bond Fund (LQD), posted an outflow of $28.1 million last week compared to an inflow of $8.5 million the previous week. Last week, outflows were triggered by downsizing in global economic data—particularly the Ukraine-Russia turmoil and slow growth in China’s industrial sector, which affected the U.S. equity market (SPY). Since equity markets and the corporate bond market highly correlate, activity tends to match in both asset classes. For both equity and corporate bonds, economic growth helps in boosting investors’ confidence. However, for bonds, a rise in the economy leads to a fall in bond demand, causing interest rates to go up. High interest rates cause bond prices to fall.

The iSharesIBoxx $ Investment Grade Corporate Bond Fund (LQD), with top holdings in Verizon Communications (VZ) and Apple Inc. (AAPL), seeks investment results that correspond to the price and yield performance, before fees and expenses, of the corporate bond market, as defined by the iBoxx $ Liquid Investment Grade Index. Verizon Communications (VZ) is an American broadband and telecommunications provider, while Apple Inc. (AAPL) is an American multinational corporation that designs, develops, and sells consumer electronics, computer software, and personal computers. The ETF, with a gross expense ratio of 0.15%, posted a one-month fund flow of $22.3 million.

To learn more about investing in fixed income ETFs, see the Market Realist series Credit ratings: Another bubble in the making?


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