Investor flows in high yield bond funds
Outflows in high yield bond funds sped up for the second successive week. According to Lipper, net outflows totaled $2.74 billion in the week ended May 8, compared to net outflows of $859 million in the week ended May 1. However, on a year-to-date (or YTD) basis, high yield bond funds have witnessed inflows to the tune of $6.8 billion.
Yields and spreads analysis
Both yields on high yield debt (HYG) and spreads between high yield debt (JNK) and Treasuries (TLT) (IEF) remained unchanged over the week ended May 8. High yield debt yields, as represented by the BofA Merrill Lynch US High Yield Master II Effective Yield, ended flat at 6.12%, which was their highest in a month. Yields had touched a high of 6.20% a day before, but fell sharply on the final day of trading in the week.
Like yields, the Option Adjusted Spread (or OAS) was also unchanged in the week. The BofA Merrill Lynch US High Yield Master II Option-Adjusted Spread ended flat at 4.53% on May 8. The spread had risen to 4.55% before coming down.
Returns on high yield debt indices and ETFs
Bond yields and prices move in opposite directions. With yields remaining unchanged, returns on high yield debt only marginally crept up in the week ended May 8. The BofA Merrill Lynch US High Yield Master II Index rose by 0.08% over the week. Returns in 2015 were positive, with the index up by 3.9% until May 8.
Popular ETFs providing exposure to high yield debt also gained over the week. The prices of the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the SPDR Barclays Capital High Yield Bond ETF (JNK) rose by ~0.3% each while the PowerShares Fundamental High Yield Corporate Bond ETF (PHB) gained by 0.1% week-over-week.
DuPont’s (DD) subsidiary, the Chemours Company, was the biggest issuer of high yield bonds last week. HCA, a subsidiary of healthcare services provider HCA Holdings (HCA), was the second highest issuer of last week. Among other major issuers were oil and natural gas producer Range Resources Corporation (RRC), gaming company Boyd Gaming Corporation (BYD), and independent energy firm SM Energy Company (SM). You can read more about the primary market activity in part three of this series.