uploads///US Investment Grade Bond Fund Flows

Investment-Grade Bond Funds See a Second Week of Outflows


Nov. 20 2020, Updated 2:14 p.m. ET

Investor flows

Flows into investment-grade bond funds were negative for the week ended August 5—marking a second successive week of outflows. Investment-grade bond funds saw net outflows of $740.2 million in the week. Outflows amounted to $1.262 billion in the week ended July 29.

With these outflows, investment-grade bonds have attracted inflows worth $28.1 billion in 2015 year-to-date.

Last week, Celgene Corporation (CELG), The Royal Bank of Scotland (RBS), HSBC USA (HSBC), 3M Company (MMM), and Philip Morris International (PM) were among the biggest issuers of investment-grade corporate bonds. You can read the details of some of these issues in Part 4 of this series.

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Yield analysis: Corporate high-quality debt securities

Investment-grade bond yields usually follow cues from the Treasuries market. Treasury yields rose at the short and intermediate ends of the yield curve week-over-week while yields fell for long-term Treasury securities. Investment-grade corporate bond yields took cues from intermediate-maturity securities and rose. They hit a 2015 high of 3.41% on August 5 but ended at 3.37% on August 7, which was down three basis points from the previous week, according to the BofA Merrill Lynch US Corporate Master Effective Yield.

The option-adjusted spread (or OAS) rose two basis points week-over-week to end at 1.60%—its highest since July 13, 2013. 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.

Impact on investment-grade bond MFs

As yields rose, returns of investment-grade bond mutual funds (or MFs) fell.

The Oppenheimer Core Bond Fund (OPIGX) invests almost 54% of its assets in investment-grade corporate bonds. OPIGX was down -0.53% in the week ended August 7, 2015.

The Prudential Total Return Bond A’s (PDBAX) weekly returns came in negative at -0.46% for the week ended August 7, 2015. The fund invests almost 61% of its assets in investment-grade corporate bonds.

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


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