Investor flows in high yield bond funds
Investor flows in high yield bond funds turned positive last week, after two successive weeks of outflows. According to Lipper, net inflows into high yield bond funds totaled $186 million in the week ended September 9, compared to outflows totaling $227 million in the previous week. But even with these inflows, high yield bond funds have witnessed outflows to the tune of $4.1 billion on a year-to-date (or YTD) basis.
Yields and spreads analysis
Both yields on high yield debt (HYG) and spreads between high yield debt (JNK) and Treasuries (TLT) (IEF) fell over the week ended September 11. High yield debt yields, as represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield, ended last week at 7.23%, down by nine basis points from September 4. Yields fell nearly throughout the week.
Like yields, the Option Adjusted Spread (or OAS) also fell in the week. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread stood at 5.62% on September 11, down by 12 basis points compared to September 4.
Returns on high yield debt indices and ETFs
Bond yields and prices move in opposite directions. As yields fell, returns on high yield debt in the week ended September 11 were positive. The BofA Merrill Lynch U.S. High Yield Master II Index rose 0.5% over the week. Returns in 2015 were also positive, with the index up by 0.7% as of September 11.
Popular ETFs providing exposure to high yield debt also rose 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) rose 0.6% each.
In primary market issuance, Frontier Communications (FTR), Mallinckrodt International Finance, a subsidiary of Mallinckrodt Public Limited Company (MNK), Targa Resources Partners (NGLS), HealthSouth (HLS), and Allegion (ALLE) were the issuers of high yield bonds last week. You can read more about the primary market activity in part three of this series.