Investor flows in high yield bond funds
Investor flows in high yield bond funds were positive last week, although only marginally so, making it the third successive week of inflows. According to Lipper, net inflows into high yield bond funds totaled $17.7 million in the week ended September 23, compared to inflows totaling $236.4 million in the previous week. Even with these inflows, high yield bond funds saw $3.8 billion in outflows on a year-to-date basis.
Yields and spreads analysis
Yields on high yield debt (HYG) as well as spreads between high yield debt (JNK) and Treasuries (TLT) (IEF) jumped in the week ended September 25. High yield debt yields, as represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield, rocketed to 7.71% last week, up by 37 basis points from the week ended September 18. This was not just the highest level in year-to-date 2015—it was also the highest since June 15, 2012.
Similar to yields, the Option-Adjusted Spread (or OAS) also rose in the week. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread zoomed to 6.15% on September 25—up by 35 basis points compared to September 18. This was the largest spread since July 31, 2012.
Returns on high yield debt indices and ETFs
Bond yields and prices move in opposite directions. As yields rose, returns on high yield debt fell in the week ended September 25. The BofA Merrill Lynch U.S. High Yield Master II Index fell 1.5% over the week. Returns in 2015 also turned negative, with the index down by 1.3% until September 25.
Popular ETFs providing exposure to high yield debt dived 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 2.1%, 1.1%, and 1.7%, respectively.
In primary market issuance, Netherlands-based Altice N.V. was the biggest issuer of high yield bonds last week. It raised the bonds for the acquisition of Cablevision Systems Corporation (CVC). Olin Corp. (OLN), Iron Mountain Incorporated (IRM), Tempur Sealy International Inc. (TPX), Orbital ATK, Inc. (OA), and Corrections Corporation of America (CXW) were among the other issuers of high yield bonds last week.
You can read more about the primary market activity in Part 3 of this series.