Investor flows in high-yield bond funds
Investor flows in high-yield bonds turned marginally positive last week after witnessing massive outflows the week before. According to Lipper, net inflows into high-yield bond funds totaled $45.1 million in the week ended July 8, compared to net inflows of $2.98 billion in the week ended July 1. It was the smallest inflow so far this year.
High-yield bond funds have witnessed inflows to the tune of $280 million on a year-to-date basis.
Yields and spreads analysis
Yields on high-yield debt (HYG) and spreads between high-yield debt (JNK) and Treasuries (TLT) (IEF) both rose over the week ended July 10. High-yield debt yields, as represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield, rose 9 basis points from a week ago to 6.75%. Yields surged to 6.80% on July 8, a level not seen since January 7, 2015.
Like yields, the option adjusted spread (or OAS) rose in the week ended July 8. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread gained 6 basis points from last week to end at 4.97% on July 10. The spread surged to 5.2% on July 8, the highest since February 2, 2015.
Returns on high-yield debt indices and ETFs
Bond yields and prices move in opposite directions. With yields rising, returns on high-yield debt fell in the week ended July 10. The BofA Merrill Lynch U.S. High Yield Master II Index fell 0.4% over the week. Returns in 2015 were positive, with the index up 2.4% until July 10.
Popular ETFs providing exposure to high-yield debt were mixed over the week. Prices of the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the PowerShares Fundamental High Yield Corporate Bond ETF (PHB) rose, posting gains of 0.06% and 0.21%, respectively. The SPDR Barclays High Yield Bond ETF (JNK) fell 0.29%.
There was no issuance in the primary market last week. So we reviewed issuance in June and 2Q15 in parts 2 and part 4 of this series, respectively. Tenet Healthcare (THC) was the highest issuer of junk bonds in June. It was also among the highest issuers of these bonds in 2Q15. Endo Pharmaceuticals, a subsidiary of Endo International plc (ENDP), was also among the notable issuers in June.
ZF Friedrichshafen, a German car parts maker, was the highest issuer of junk bonds in 2Q15. It raised dollar-denominated bonds worth $3.5 billion in April to acquire US-based TRW Automotive Holdings (TRW). Fiat Chrysler Automobiles (FCAU) and Charter Communications (CHTR) were among other notable issuers of 2Q15.