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Investment-Grade Bond Yields Rose Slightly amid Falling Oil Prices

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Investment-grade bond yields

Investment-grade bond yields rose marginally in the week ended January 14, 2016, after oil prices touched new lows. Oil from Iran will hit the market soon, and Arab exporters are not ready to cut the supply of oil.

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Oil prices tumbled below $28 a barrel

Oil prices fell below $28 a barrel—the lowest since 2003—as Iran sanctions were lifted, allowing Iranian oil to hit the market soon. Meanwhile, the Iranian Ministry of Petroleum issued an order to increase production by 500,000 barrels per day once the sanctions were lifted.

Iran currently produces 2.8 million barrels per day and exports more than 1 million barrels per day. Further, due to the cooling Chinese economy, energy demand from the world’s second-largest economy has slowed considerably.

Chinese GDP data

China released its gross domestic product data on January 19, 2016. Its GDP grew 6.8% in the fourth quarter of 2015, down by 0.1% from the previous quarter. In 2015, it grew by 6.9%, the slowest since 1990.

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Advance retail sales and PPI data

Advance retail sales and the producer price index (or PPI) data were released on January 15. Advance retail sales fell 0.1% in December after rising 0.2% in November. This indicates a slump in the retail sector. Meanwhile, retail giant Walmart (WMT) plans to close 269 small Express outlets by the end of January. The company implemented this measure in order to cut costs after announcing weak estimated profits for the next fiscal year.

The PPI for final demand fell 0.2% in December after rising 0.3% in November. The PPI for final demand fell 1.0% year-over-year.

Yield movement

Corporate bond yields, as measured by the BofA Merrill Lynch US Corporate Master Effective Yield, ended at 3.6% on January 14. This was up 1 basis point from the previous week.

The Vanguard Total Bond Market Index Fund – Investor Class (VBMFX) provides broad exposure to US investment-grade bonds. VBMFX invests in investment-grade corporate bonds of companies such as Apple (AAPL), Walmart (WMT), Bank of America (BAC), AT&T (T), and Oracle (ORCL). The week-over-week return of VBMFX was up by 0.21%.

In this series, we will take a detailed look at investment-grade corporate debt issuances for the week ended January 15, 2016. But first, let’s take a look at how yields on corporate bonds have fared so far.

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