uploads///US Investment Grade Bond Fund Flows

Investment-Grade Bond Funds Keep Seeing Outflows

Lynn Noah - Author

Feb. 5 2016, Updated 12:05 a.m. ET

Investor flows came in negative

Flows into investment-grade bond funds were negative for the week ending January 20, 2016. According to the Lipper funds flow data, investment-grade bond funds saw net outflows of $442 million during the same week, compared to outflows amounting to $740 million in the previous week (ending January 13).

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YTD net outflows of investment-grade bond funds

So far in 2016, investment-grade bond funds have seen YTD (year-to-date) net outflows of $2.3 billion as of January 20. But the investment-grade bond issuance was slow last week compared to the previous week, with high-grade bond issues falling by 53.9% to more than $28.8 billion on the week.

In the week ending January 22, Morgan Stanley (MS), Wells Fargo & Company (WFC), Royal Bank of Canada (RY), and TransCanada Pipelines, a limited partnership firm sponsored by TransCanada Corporation (TRP), were among the largest issuers of investment-grade bonds. (For details, check out Part 4 of this series, “Morgan Stanley Takes First Place in High-Grade Bond Issuance.”)

Yield and spread analysis of corporate high-quality debt securities

Investment-grade bond yields usually follow cues from the Treasuries market. Last week (ending January 22), Treasury yields rose across the yield curve, and investment-grade corporate bond yields also rose last week.

Yields rose by eight basis points and ended at 3.67% on January 22, according to the BofA Merrill Lynch US Corporate Master Effective Yield. The return on the MFS Total Return Bond Fund Class A (MRBFX) was down by 0.2% while that of the Ivy Limited-Term Bond Fund Class A (WLTAX) was down by 0.09% last week.

Reading the option-adjusted spread as of January 22

Like yields, the option-adjusted spread, or OAS, also rose by seven basis points to end at 1.96% on January 22. The OAS measures the average difference in yields between investment-grade bonds and Treasuries. Thus, a rise in this spread implies that the risk of high-grade bonds relative to Treasuries has increased.

For further analysis of mutual funds, check out Market Realist’s Mutual Funds page.


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