Investment-Grade Bond Funds Record Back-to-Back Outflows



Investor Flows

Flows into investment-grade bond funds were negative for the week ended August 14—marking the third consecutive week of outflows. Investment-grade bond (AGG) funds saw net outflows of $1.848 billion in the week. This compares to outflows amounting to $742.2 million in the week ended August 5.

Investment-grade corporate bond issuers thronged the primary market last week. ING Bank (ING), Lloyds Bank (LYG), Barclays (BCS), HSBC Holdings (HSBC), and Bank of New York Mellon (BK) were among the biggest issuers of investment-grade bonds in the week ended August 14. You can read the details of some of this issuance in Part 4 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 rose across the yield curve week-over-week. Investment-grade corporate bond yields took cues from Treasury securities and rose. They touched a year-to-date 2015 high of 3.41% on August 14, up four basis points from the previous week, according to the BofA Merrill Lynch US Corporate Master Effective Yield.

The option-adjusted spread (or OAS) rose one basis point week-over-week to end at 1.64%. The OAS measures the average difference in yields between investment-grade bonds and Treasuries. So a rise in this spread implied that the risk of high-grade bonds relative to Treasuries increased.

Impact on investment-grade mutual funds

With the rise in yields, the week-over-week return on the PIMCO Total Return A (PTTAX) was down 0.03%.

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


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