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Investment-Grade Bond Funds Saw First Weekly Inflow of 2016

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Investor flows

Flows into investment-grade bond funds were positive for the week ended February 10. According to Lipper funds flow data, investment-grade bond funds saw net inflows of $551.4 million during the week after 11 consecutive weeks of outflows. In comparison, outflows were $1.5 billion in the week ended February 3.

Investment-grade bond funds have seen year-to-date (or YTD) net outflows of $4.4 billion up to February 10, 2016.

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Soft credit conditions and widening spreads kept investment-grade issuers away from the market. As a result, investment-grade bond issuance fell last week as compared to the previous week. High-grade bond issuance fell from $12.2 billion in the previous week to $1.0 billion last week with only two deals getting priced.

Rentenbank and Senior Housing Properties Trust (SNH) were the only two issuers of investment-grade bonds last week. You can read details of the issues in part four of the series.

Meanwhile, in the previous week, Home Depot (HD), National Rural Utilities Cooperative Finance, Starbucks (SBUX), and Praxair (PX) were some of the issuers of investment-grade bonds.

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 fell across the yield curve. However, investment-grade corporate bond yields rose week-over-week.

Yields rose by five basis points from a week ago and ended at 3.7% on February 12, according to the BofA Merrill Lynch US Corporate Master Effective Yield.

The returns on the Putnam Income Fund – Class A (PINCX) and the American Century Diversified Bond Fund – Class A (ADFAX) were down by 0.7% and 0.1%, respectively, for the week ended February 12, 2016.

Like yields, the option-adjusted spread (or OAS) also rose by 11 basis points to end at 2.2% on February 11. The OAS measures the average difference in yields between investment-grade bonds and Treasuries. Thus, a rise in this spread implied that the risk of high-grade bonds relative to Treasuries increased.

For more analysis on mutual funds, please visit Market Realist’s Mutual Funds page.

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