uploads///US Investment Grade Bond Fund Flows

Investment-Grade Bond Funds Witnessed Record Outflows Last Week


Dec. 22 2015, Published 10:02 a.m. ET

Investor flows

According to Lipper, flows into investment-grade bond funds were negative for the week ended December 16. The investment-grade bond funds saw record net outflows of $5.1 billion during the week. This was compared to outflows amounting to $1.6 billion in the week ended December 9.

Investment-grade bond funds have seen year-to-date (or YTD) net inflows of $6.7 billion up to December 16, 2015.

In the week to December 18, no investment-grade corporate bonds were issued. Investment-grade bond issuance fell last week to zero as compared to $32.2 billion in the previous week.

However, in the previous week, Visa (V), Schlumberger Holding (SLB), Credit Suisse Group Funding (Guernsey), a subsidiary of Credit Suisse AG (CS), Toronto-Dominion Bank (TD), and Marathon Petroleum (MPC) were among the biggest issuers of investment-grade bonds.

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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 along the medium and long end of the yield curve. Investment-grade corporate bond yields also rose because of the Fed’s interest rate hike.

Yields rose by ten basis points from the previous week and ended at 3.6% on December 18, 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 0.4% each.

Like yields, the option-adjusted spread (or OAS) rose by three basis points to end at 1.7% on December 18. The OAS 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.


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