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High Yield Bond Funds Saw Inflows while Yields Continued to Fall

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Investor flows into high yield bond funds

Investor flows into high yield bond funds were positive last week. According to Lipper, net inflows from high yield bond funds totaled $1.2 billion in the week ended April 6. In the previous week, high yield bond funds had seen net outflows of $545 million. With inflows last week, high yield bond funds have witnessed YTD inflows of $8.9 billion.

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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 April 8, 2016.

High yield debt yields, as represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield, fell eight basis points from a week ago and ended at 8.3% on April 8, 2016.

Like yields, the Option Adjusted Spread (or OAS) fell in the week. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread fell two basis points from last week to end at 7.0% on April 8.

Returns on high yield debt indexes, mutual funds, and ETFs

Bond yields and prices move in opposite directions. With yields falling, returns on high yield debt fell in the week ended April 8. The BofA Merrill Lynch U.S. High Yield Master II Index rose 0.5% over the week. Returns in 2016 were positive with the index up by 4.0% year-to-date.

Mutual funds like American Funds American High-Income Trust – Class A (AHITX) and the PIMCO High Yield Fund – Class A (PHDAX) provide exposure to high yield debt. Weekly returns of the AHITX and the PHDAX were up by 0.2% and 0.3%, respectively.

Popular ETFs providing exposure to high yield debt rose during the week. The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) was up by 0.2% while the SPDR Barclays Capital High Yield Bond ETF (JNK) was flat over the week ended April 8.

In the primary market, Numericable SFR, Charter Communications (CHTR), MGM Growth Properties, a limited liability company of MGM Resorts International (MGM), and Sunoco LP (SUN), a subsidiary of Energy Transfer Equity LP (ETE), were some of the issuers of high yield bonds. You can read more about the 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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