uploads///US Investment Grade Bond Fund Flows

Inflows into Investment-Grade Bond Funds Increase Last Week

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Nov. 20 2020, Updated 5:30 p.m. ET

Investor flows

Inflows into investment-grade (LQD) bond funds turned higher in the week ended May 1. Investment-grade bond (AGG) funds saw net inflows of $1.53 billion in the week. This was up 11.5% from the previous week in which inflows worth $1.37 billion had been recorded.

With these inflows, investment-grade bonds have attracted inflows of ~$27.7 billion in 2015 so far, over two and a half times more than their junk bond counterparts.

Investment-grade bond issuers took a breather in the week ending May 1 in order to see the FOMC’s (Federal Open Market Committee) decision regarding monetary policy. US corporates thronged the market, while Yankee issuers were absent from the primary market.

Oracle (ORCL), Amgen (AMGN), PepsiCo (PEP), and United Technologies (UTX) were the highest issuers of bonds in the week ending May 1. You can read the details about some of these issues in part four of this series.

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Yields analysis for corporate high-quality debt securities

Investment-grade bond yields usually follow cues from the Treasuries market. With a rise in Treasury yields, investment-grade corporate bond yields also rose. They came in at 3.06% on May 1, up 19 basis points from the previous week, according to the BofA Merrill Lynch US Corporate Master Effective Yield.

The option-adjusted spread (or OAS) rose by one basis point week-over-week to end at 1.33%. The OAS measures the average difference in yields between investment-grade bonds and Treasuries. Thus, a rise in this spread implies that the risk of high-grade bonds relative to Treasuries increased.

Prices of investment-grade debt ETFs decrease

A rise in yields of corporate bonds led to a negative impact on the prices of investment-grade bond ETFs. The iShares iBoxx $ Investment Grade Corporate Bond Fund (LQD) fell by 2.2% in the week ended May 1. In the same period, the Core Total US Bond Market ETF (AGG) and the Vanguard Total Bond Market ETF (BND) fell by 1.0% and 1.1%, respectively, due to a rise in bond yields.

For more bond market trends and analysis, please visit Market Realist’s Fixed Income page.

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