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Checking in with Outflows: How Much Did Investment-Grade Bond Funds See Last Week?

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Investor flows

Flows into investment-grade bond funds were negative in the week ending February 5. According to Lipper’s funds flow data, investment-grade bond funds saw net outflows of ~$1.5 billion during the week. This was compared to outflows amounting to ~$1.2 billion in the week ending January 29.

Investment-grade bond funds have seen YTD (year-to-date) net outflows of nearly $5 billion up to February 3, 2016. Investment-grade bond issuance fell last week compared to the previous week. High-grade bond issuance fell by 47.2% to $12.2 billion last week.

In the week to February 5, Home Depot (HD), National Rural Utilities Cooperative Finance Corporation, Starbucks (SBUX), and Praxair (PX) were among large issuers of investment-grade bonds. (You can read the details of these issues in Part 4 of this series.)

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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 came in at the intermediate and long end of the yield curve. But investment-grade corporate bond yields rose marginally during the period.

Meanwhile, yields nudged up by one basis point and ended at ~3.6% on February 5, according to the BofA Merrill Lynch US Corporate Master Effective Yield. By comparison, returns on the Wasatch-1st Source Income Fund (FMEQX) and the American Century Diversified Bond Fund Class A (ADFAX) were up by 0.1% each.

Like yields, the OAS (option-adjusted spread) rose by seven basis points to end at ~2.1% on February 5. 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 more analysis of mutual funds, please visit Market Realist’s Mutual Funds page.

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