Investor flows in high-yield bond funds
Investor flows in high-yield bond funds were negative last week. They were negative for the second week after three successive weeks of inflows. According to Lipper, the net outflows from high-yield bond funds totaled $1.2 billion in the week ending August 5—compared to net outflows of $1.7 billion in the week ending July 29. Due to these sharp outflows, high-yield bond funds have witnessed outflows to the tune of $1.4 billion on a YTD (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 ending August 7. High-yield debt yields, as represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield, rose 18 bps (basis points) from a week ago to 7.17%—the highest level since December 16, 2014. This was primarily due to strong US jobs data. This could support the case of a rate hike in the US.
Like yields, the OAS (Option Adjusted Spread) rose in the week. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread rose 16 bps from last week to end at 5.52% on August 7—the highest level since December 16, 2014.
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 ending August 7. The BofA Merrill Lynch U.S. High Yield Master II Index fell 0.80% over the week. However, the returns in 2015 were positive. The index rose by 1% until August 7.
Popular ETFs providing exposure to high-yield debt also fell sharply over the week. Prices of the iShares iBoxx $ High Yield Corporate Bond ETF (HYG), the PowerShares Fundamental High Yield Corporate Bond ETF (PHB), and the SPDR Barclays High Yield Bond ETF (JNK) fell 1%, 0.40%, and 1.10%, respectively.
In primary market issuance, First Data, Pharmaceutical Product Development, Vista Outdoor (VSTO), Anixter International (AXE)—for the acquisition of HD Supply Holdings’ (HDS) power solutions business, Party City Holdco (PRTY), HealthSouth (HLS), and RSP Permian (RSPP) were among the issuers of high-yield bonds. You can read more about the primary market activity in Part 3 of this series.