Investor flows in high-yield bond funds
Outflows in high-yield bond funds slowed down in the week ended May 15, although they continued for the fourth successive week. According to Lipper, net outflows totaled $89 million last week compared to net outflows of $2.74 billion in the week ended May 8. But on a year-to-date basis, high-yield bond funds have witnessed inflows to the tune of $6.7 billion.
Yields and spreads analysis
Yields on high-yield debt (HYG) fell, but spreads between high-yield debt (JNK) and Treasuries (TLT) (IEF) widened over the week ended May 15. High-yield debt yields, represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield, ended marginally down by 1 basis point from a week ago at 6.11%. Yields touched a high of 6.23% earlier in the week, the highest since April 2, but fell in all succeeding trading days.
Unlike yields, the option adjusted spread (or OAS) widened in the week. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread rose by 2 basis points at 4.55% on May 15.
Returns on high-yield debt indices and ETFs
Bond yields and prices move in opposite directions. With yields falling marginally, returns on high-yield debt also crept up marginally in the week ended May 15. The BofA Merrill Lynch U.S. High Yield Master II Index rose by 0.04% over the week. Returns in 2015 were positive, with the index up by 3.9% until May 15.
Popular ETFs that provide exposure to high-yield debt ended mixed over the week. The prices of the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the PowerShares Fundamental High Yield Corporate Bond ETF (PHB) fell by 0.08% and 0.58%, respectively. The SPDR Barclays Capital High Yield Bond ETF (JNK) gained by 0.03% week-over-week.
Car loan provider Ally Financial (ALLY) was the biggest issuer of high-yield bonds last week. The Burger King–Tim Hortons combination, owned by Restaurant Brands International (QSR), came in a close second at $1.25 billion. Consumer products company Spectrum Brands Holdings (SPB) issued bonds worth $1.0 billion. Among other issuers, CNO Financial Group (CNO) raised high-yield bonds worth $800 million, while Energizer Holdings (ENR) raised bonds worth $600 million. You can read more about the primary market activity in Part 3 of this series.