uploads///US High Yield Bond Fund Flows

October Saw Generous Inflows for High-Yield Bond Funds


Nov. 6 2015, Published 7:59 a.m. ET

Investor inflows for high-yield bond funds

Investor inflows for high-yield bond funds remained positive throughout October after the net outflows witnessed in September. According to Lipper, net inflows for high-yield bond funds totaled $7.6 billion through October 28, compared to outflows totaling $1.9 billion in September. Due to these massive inflows, high-yield bond funds have witnessed inflows to the tune of $1.6 billion on a YTD (year-to-date) basis. High-yield bond funds had been witnessing outflows on a YTD basis from the week ending July 29 until the week ending October 21.

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Yields and spreads analysis

Both yields on high-yield debt (HYG) and spreads between high-yield debt (JNK) and Treasuries (TLT) (IEF) fell in October. High-yield debt yields, as represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield, fell on October 30 to 7.5%—down 63 basis points from September 30. However, October began on a sour note as yields surged on October 2 to 8.2%—not only the highest level YTD but also the highest since December 31, 2011.

The Option Adjusted Spread, or OAS, also fell in October. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread fell on October 30 to 5.9%—down 74 basis points compared to September 30. Like yields, spreads also widened as October began. On October 2, they rose to 6.8%—the largest spread since June 15, 2012.

Returns on high-yield debt indices and ETFs

Bond yields and prices move in opposite directions. As yields fell, returns on high-yield debt rose in October. The BofA Merrill Lynch U.S. High Yield Master II Index rose 2.7% in October after falling 2.6% in September. Returns in 2015 were marginally positive, with the index rising 0.1% through October 30.

Popular ETFs providing exposure to high-yield debt 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 3.2%, 2.8%, and 2.8%, respectively, in October.

October was thin on primary market issuance. First Data Corporation (FDC) emerged as the biggest issuer of high-yield bonds in October. L Brands (LB) and subsidiaries of Netherlands-based AerCap Holdings (AER) were also among major issuers.

Other high-yield bond issuers included Level 3 Financing—a wholly owned subsidiary of Level 3 Communications (LVLT), Lennar Corporation (LEN), and The Scotts Miracle-Gro Company (SMG).

In the next article, we’ll see the status of primary market issuance for leveraged loans in October 2015.


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