uploads///US Investment Grade Bond Fund Flows

Investment-Grade Bond Funds See Back-to-Back Outflows


Dec. 9 2015, Updated 8:06 a.m. ET

Investor flows

Flows into investment-grade bond funds were negative for the week ending December 2. Investment-grade bond funds saw net outflows of $546.7 million during the week. This was compared to outflows amounting to $1.5 billion in the week ending November 25. Investment-grade bond funds have seen YTD (year-to-date) net inflows of $13.4 billion, as of December 4, 2015.

Investment-grade bond issuance skyrocketed last week to $33.5 billion, as compared to $2.7 billion in the previous week.

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In the week ending December 4, McDonald’s (MCD), Wells Fargo and Company (WFC), Citigroup (C), Solvay Finance America (the financial arm of international chemical group Solvay SA), and Analog Devices (ADI) were among the biggest issuers of investment-grade bonds. You can read the details of some of these issues in part 4 of this series.

Yield and spread analysis of corporate high-quality debt securities

Investment-grade bond yields usually follow cues from the Treasuries market. Last week, Treasury yields rose across the yield curve. Investment-grade corporate bond yields also rose mainly because of the increased likelihood of a rate hike in December.

Yields rose by 4 basis points from the previous week and ended at 3.54% on December 4, according to the BofA Merrill Lynch US Corporate Master Effective Yield.

Due to the rise in yields, the weekly returns on the MFS Total Return Bond Fund Class A (MRBFX) and the Ivy Limited-Term Bond Fund Class A (WLTAX) fell by 0.23% and 0.19%, respectively.

Unlike yields, the option-adjusted spread, or OAS, fell 1 basis point to end at 1.62% on December 4. The OAS measures the average difference in yields between investment-grade bonds and Treasuries. Thus, a fall in this spread implies a decreased risk of high-grade bonds relative to Treasuries.

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


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