uploads///Investment Grade Bond Fund Flows

Investment-Grade Bond Funds See 6 Successive Weeks of Outflows


Sep. 23 2015, Updated 4:13 a.m. ET

Investor flows

Investment-grade bond funds witnessed outflows for the week ended September 2—marking their sixth successive week of outflows. Investment-grade bond funds saw net outflows of $2.27 billion in the week. This compared to outflows amounting to $1.99 billion in the week ended August 26.

However, investment-grade bonds have attracted net inflows of $20.90 billion year-to-date.

High-grade bonds saw no issuance last week and only one issue in the week ended August 28, 2015. This was primarily due to economic uncertainty in China and a possible federal funds rate hike in the United States, which could happen during the September 16–17 meeting of the Federal Reserve.

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In the previous article of this series, we reviewed the top issues for August 2015. Celgene Corporation (CELG) issued bonds worth $8.0 billion on August 3, followed by HSBC USA (HSBC), which issued bonds worth $2.7 billion on August 4. On August 10, ING Bank NV (ING) issued bonds worth $2.5 billion. McGraw Hill Financial (MHFI) issued bonds worth $2.0 billion on August 13. BNP Paribas issued bonds worth $1.5 billion on August 12.

Yields analysis of corporate high-quality debt securities

Investment-grade bond yields usually follow cues from the Treasuries market. Treasury yields fell marginally across the yield curve week-over-week.

Investment-grade corporate bond yields remained unchanged from the previous week, according to the BofA Merrill Lynch US Corporate Master Effective Yield. They had touched a year-to-date 2015 high of 3.48% on August 31 but ended at 3.44% on September 3.

The option-adjusted spread (or OAS) fell week-over-week by two basis point to end at 1.68% on September 3. The OAS measures the average difference in yields between investment-grade bonds and Treasuries. So a fall in this spread implied that the risk of high-grade bonds relative to Treasuries decreased.

Investment-grade bond MF returns

As yields remain unchanged, returns on investment-grade bond mutual funds (or MFs) were muted.

The Prudential Total Return Bond A (PDBAX) invests more than 50% of its assets in investment-grade corporate bonds. The week-over-week return of the PDBAX came in at 0.04%.


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