Investor flows in high-yield bond mutual funds
Net inflows in junk bond mutual funds picked up in the week ended April 10. According to Lipper, net inflows totaled $1.35 billion in the week. Net inflows had come in at $315 million in the week ended April 2. Inflows totaled $9.7 billion year-to-date in 2015.
Yields and spreads
Yields on high-yield (HYG) debt and spreads between high-yield debt (JNK) and Treasuries (TLT) (IEF) both fell over the week ended April 10. High-yield debt yields, represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield, fell sharply by 17 basis points to end the week at 6.07%.
The option-adjusted spread (or OAS) also fell in the week. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread dived by 22 basis points to come in at 4.60% on April 10.
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 April 10. The BofA Merrill Lynch U.S. High Yield Master II Index rose by 0.8% over the week. Returns in 2015 were also positive, with the index up by 3.4% until April 10.
Popular ETFs that provide exposure to high-yield debt were also positive over the week. 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) rose by 0.9%, 0.6%, and 0.6%, respectively, over the week ended April 10.
The largest issuers of high-yield bonds in the primary market last week were Fiat Chrysler Automobiles (FCAU); GM Financial, the financial services arm of auto major General Motors (GM); and Mallinckrodt International, a subsidiary of specialty pharma company Mallinckrodt PLC (MNK). You can read more about the primary market activity in Part 3 of this series.