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High-Yield Bond Funds Witness Inflows, Yield on Bonds Fell

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Investor flows into high-yield bond funds

Investor flows into high-yield bond funds were positive in the week ended January 29, 2016, after three consecutive weeks of outflows. According to Lipper, net inflows into high-yield bond funds totaled $883.0 million in the week ended January 27, the first inflow into funds in 2016. Compare this to net outflows of $2.0 billion in the week ended January 20. With this inflow, high-yield bond funds have witnessed outflows of $4.1 billion on a year-to-date basis.

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Yields and spreads analysis

Yields on high-yield debt and spreads between high-yield debt and Treasuries fell over the week ended January 29, 2016.

High-yield debt yields, as represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield, fell 26 basis points from a week ago and ended at 9.2% on January 29, 2016.

The Option Adjusted Spread also fell in the week. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread fell 13 basis points from the prior week to end at 7.7% on January 29.

Returns on high-yield debt indexes and MFs

Bond yields and prices move in opposite directions. With yields falling, returns on high-yield debt rose in the week ended January 29. The BofA Merrill Lynch U.S. High Yield Master II Index rose 1.1% over the week. However, returns in 2016 remained negative, with the index falling year-to-date by 1.3%.

Mutual funds such as the American High-Income Trust – Class A (AHITX) and the PIMCO High Yield Fund – Class A (PHDAX) provide exposure to high-yield debt. The weekly return of AHITX rose 1.2%, while PHDAX rose 1.4%.

The holdings of AHITX include Sprint (S) and Wind Acquisition Finance. The holdings of PHDAX include Citigroup (C) and AerCap Ireland Capital, a wholly owned subsidiary of AerCap Holdings (AER) and Altice.

In the primary market, Centene (CNC), GFL Environmental, and Lamar Media, a wholly owned subsidiary of Lamar Advertising (LAMR), were some of the major issuers last week. You can read more about the primary market activity in Part 3 of this series.

In the next article, we’ll analyze primary market activity in leveraged loans.

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