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Investment-Grade Bond Funds Saw Outflows for Third Week in a Row

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Investor flows

Flows into investment-grade bond funds were negative for the week ended September 30, making it the third consecutive week of outflows. Investment-grade bond funds saw net outflows of $3.62 billion during the week compared to outflows amounting to $3.52 billion in the week ended September 23.

Even with the outflows last week, investment-grade bonds have attracted net inflows worth $13.44 billion in 2015 year-to-date.

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Investment-grade bond issuance fell to $26.275 billion last week as compared to $32.35 billion in the previous week. In the week to October 2, Hewlett-Packard Enterprise Company, a wholly owned subsidiary of Hewlett-Packard Company (HPQ), Enbridge Energy Partners (EEP), WEA Finance, a subsidiary of Westfield America, PPL Electric Utilities, a subsidiary of PPL Corporation (PPL), and PECO Energy Company, a subsidiary of Exelon Corporation (EXC), were among the biggest issuers of investment-grade bonds. You can read about the details of some of these issues in part four of this series.

Yield and spread analysis of corporate high-quality debt securities

Investment-grade bond yields usually follow cues from the Treasuries market. Treasury yields fell across the yield curve week-over-week. Investment-grade corporate bond yields took cues from the Treasury securities and fell as well.

Yields were down by five basis points from the previous week and ended at 3.38% on October 2, according to the BofA Merrill Lynch US Corporate Master Effective Yield. With a fall in yields, the week-over-week return on the PIMCO Total Return A (PTTAX) was up by 0.54%.

The OAS (option adjusted spread) measures the average difference in yields between investment-grade bonds and Treasuries. Thus, a rise in this spread implied that the risk of high-grade bonds relative to Treasuries increased.

The OAS touched the highest level since September 11, 2012, and rose ten basis points week-over-week to end at 1.80% on October 2.

For more analysis on mutual funds, please visit Market Realist’s Mutual Funds page.

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