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.
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.
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.
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