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High-Yield Bond Funds Witnessed Small Inflows, Bond Yields Fell

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Investor flows into high-yield bond funds

Investor flows into high-yield bond funds were positive last week after two consecutive weeks of negative outflows.

According to Lipper, net inflows into high-yield bond funds totaled $66.0 million in the week ended February 17, 2016, compared to net outflows of $1.1 billion in the week ended February 10. With this inflow, high-yield bond funds have witnessed outflows to the tune of $5.1 billion on a year-to-date (or YTD) 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 February 19, 2016.

High-yield debt yields, as represented by the BofA Merrill Lynch US High-Yield Master II Effective Yield, fell 40 basis points from a week ago and ended at 9.5% on February 19, 2016.

The Option Adjusted Spread (or OAS) also fell in the week. The BofA Merrill Lynch US High-Yield Master II Option-Adjusted Spread fell 41 basis points from last week to end at 8.2% on February 19.

Returns on high-yield debt indexes and mutual funds

Bond yields and prices move in opposite directions. With yields falling, returns on high-yield debt rose in the week ended February 19. The BofA Merrill Lynch US High-Yield Master II Index rose 1.5% over the week. Returns in 2016 were negative, with the index down by 2.9% year-to-date.

Mutual funds such as the American Funds American High-Income Trust Class A (AHITX) and the PIMCO High-Yield Fund Class A (PHDAX) provide exposure to high-yield debt. The weekly returns of AHITX and PHDAX were up by 1.2% and 1.5%, respectively.

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

In the primary market, Standard Industries, Medical Properties Trust (MPW), and Prestige Brands Holdings (PBH) were the three issuers last week. You can read more about primary market activity in Part Three of this series.

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

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