Investor flows in high yield bond mutual funds
Net inflows to junk bond mutual funds turned positive after two weeks of outflows. According to Lipper, net inflows totaled $856 million in the week ended March 27. Net outflows had come in at $1.0 billion in the week ended March 20. Inflows totaled $8.0 billion year-to-date in 2015.
Yields and spreads analysis
Both yields on high yield (HYG) debt and spreads between high yield debt (JNK) and Treasuries (TLT)(IEF) fell over the week ended March 27. High yield debt yields, as represented by the Bank of America Merrill Lynch U.S. High Yield Master II Effective Yield, fell by five basis points to end the week at 6.22%.
Like yields, the option-adjusted spread (or OAS) fell in the week. The Bank of America Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread also fell by five basis points in the week to come in at 4.76% on March 27.
Returns on high yield debt indices and ETFs
Bond yields and prices move in opposite directions. Due to the fall in yields, returns on high yield debt were positive in the week ended March 27. The BofA Merrill Lynch U.S. High Yield Master II Index rose by 0.3% over the week. Returns in 2015 were also positive, with the index up by 2.4% until March 27.
However, popular ETFs providing exposure to high yield debt barely moved over the week. The prices of the iShares iBoxx $ High Yield Corporate Bond ETF (HYG), the PowerShares Fundamental High Yield Corporate Bond ETF (PHB), and the SPDR Barclays Capital High Yield Bond ETF (JNK) changed by 0.03%, -0.05%, and 0.03%, respectively, over the week ended March 27.
Ally Financial (ALLY), Whiting Petroleum (WLL), and Cliffs Natural Resources (CLF) were among the most prolific issuers of high yield bonds in the primary market last week. You can read more about the primary market activity in Part 3 of this series.