Investor flows in high yield bond funds
Investor flows in high yield bond funds were negative last week. According to Lipper, net outflows into the high yield bond funds totaled $809.0 million in the seven days ended January 6, 2016, compared to net inflows of $114.1 million in the week ended December 30, 2015. With this outflow, high yield bond funds witnessed outflows to the tune of $809.0 million on a year-to-date (or YTD) basis.
Yields and spreads analysis
Yields on high yield debt and spreads between high yield debt and Treasuries rose over the week ended January 8, 2016.
High yield debt yields, as represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield, rose 13 basis points from a week ago to 8.9%.
Like yields, the OAS (option-adjusted spread) rose in the week. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread rose 28 basis points to end at 7.3% on January 8.
Returns on high yield debt indexes and mutual funds
Bond yields and prices move in opposite directions. With yields rising, returns on high yield debt fell in the week ended January 8. The BofA Merrill Lynch U.S. High Yield Master II Index fell 0.3% over the week. Returns in 2015 remained negative, and the index fell year-over-year by 4.6%.
Mutual funds such as the American High-Income Trust (AHITX) and the PIMCO High Yield Fund – Class A (PHDAX) provide exposure to high yield debt. The weekly returns of the AHITX and PHDAX funds fell by 0.6% and 0.4%, respectively.
The holdings of the AHITX fund include Sprint (S) and Wind Acquisition Finance SA while the holdings of the PHDAX fund include Citigroup (C), Altice SA, and AerCap Ireland Capital Limited. AerCap is a wholly owned subsidiary of AerCap Holdings NV (AER).
In the next article, we’ll analyze primary market activity in leveraged loans.