Third Successive Week of Inflows into Investment-Grade Bond Funds



Investor flows

Flows into investment-grade (LQD) bond funds were positive for the week ended July 22, making it the third successive week of inflows. Investment-grade bond (AGG) funds saw net inflows of $889 million in the week. This compares to inflows amounting to $267.5 million in the week ended July 15.

With these inflows, investment-grade bonds have attracted inflows worth $30.1 billion in 2015 year to date.

Investment-grade corporate bond issuance in the primary market was strong for the second consecutive week. Last week, issuers were led by UnitedHealth Group (UNH). Other notable deals were brought to the market by Intel (INTC), Citigroup (C), Morgan Stanley (MS), and Royal Bank of Canada (RY). They were among the biggest issuers of investment-grade bonds in the week ended July 24. You can read the details of some of these issues in the fourth part 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. Treasury yields were mixed across the yield curve week-over-week. There was a rise in shorter maturity securities and a fall in longer-maturity ones. Investment-grade corporate bond yields took cues from the longer-maturity securities and fell. They ended at 3.34% on July 24, which was down 1 basis point from the previous week, according to the BofA Merrill Lynch US Corporate Master Effective Yield.

The option-adjusted spread (or OAS) rose 4 basis points week-over-week to end at 1.54%. The OAS measures the average difference in yields between investment-grade bonds and Treasuries. So a rise in this spread implies that the risk of high-grade bonds relative to Treasuries increased.

Investment-grade debt ETFs post positive returns

As yields fell, prices of investment-grade bond ETFs rose due to the inverse relationship between prices and yields. The price of the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) rose 0.4% in the week ended July 24. In the same period, the iShares Core Total U.S. Bond Market ETF (AGG) and the Vanguard Total Bond Market ETF (BND) rose 0.3% and 0.4%, respectively.

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


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