Investor flows into high-yield bond funds
Investor flows into high-yield bond funds were positive for the fifth consecutive week. According to Lipper, net inflows into high-yield bond funds totaled $1.7 billion in the week ending March 16. This was lower than net inflows of $1.8 billion in the week ending March 9. With this inflow, high-yield bond funds witnessed YTD (year-to-date) inflows of $6.1 billion.
Yields and spreads analysis
Yields on high-yield debt and spreads between high-yield debt and Treasuries fell over the week ending March 18, 2016.
High-yield debt yields, as represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield, fell sharply by 24 basis points from a week ago and ended at 8.1% on March 18, 2016.
Like yields, the option-adjusted spread also fell in the week. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread fell by 11 basis points from last week. It ended at 6.7% on March 18.
Returns on high-yield debt indices, mutual funds, and ETFs
Bond yields and prices move in opposite directions. With yields falling, returns on high-yield debt rose in the week ending March 18. The BofA Merrill Lynch U.S. High Yield Master II Index rose 1.1% over the week. The returns in 2016 turned positive. The index rose by 3.9% YTD.
Mutual funds such as the American Funds American High-Income Trust – Class A (AHITX) and the Guggenheim High Yield Fund (SHYIX) provide exposure to high-yield debt. The weekly returns of AHITX and SHYIX rose by 0.7% and 0.8%, respectively.
Popular ETFs providing exposure to high-yield debt also rose over the week. The prices of the iShares iBoxx $ High Yield Corporate Bond ETF (HYG), the PowerShares Fundamental High Yield Corporate Bond ETF (PHB), and the SPDR Barclays Capital High Yield Bond ETF (JNK) rose by 0.3%, 0.7%, and 0.6%, respectively, over the week ending March 18.
In the primary market, MDC Partners (MDCA), CNH Industrial Capital—a wholly owned subsidiary of CNH Industrial N.V. (CNHI), Radian Group (RDN), and Avis Budget Car Rental—a wholly owned subsidiary of Avis Budget Group (CAR) were the issuers of high-yield bonds. You can read more about the primary market activity in Part 3 of this series.
In the next part, we’ll analyze primary market activity in leveraged loans.