Investor flows into high yield bond funds
Investor flows into high yield bond funds were negative last week after six consecutive weeks of inflows. According to Lipper, net outflows from high yield bond funds totaled $545 million in the week ended March 30, 2016, the second-lowest outflows year-to-date (or YTD).
In the previous week, high yield bond funds saw net inflows of $2.2 billion. Even with outflows last week, high yield bond funds witnessed YTD inflows of $7.7 billion.
Yields and spreads analysis
Yields on high yield debt fell slightly, and spreads between high yield debt and Treasuries rose over the week ended April 1, 2016.
High yield debt yields, as represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield, fell one basis point from a week ago and ended at 8.4% on April 1, 2016.
Unlike yields, the option-adjusted spread (or OAS) rose in the week. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread rose 12 basis points to end at 7.1% on April 1.
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 1. The BofA Merrill Lynch U.S. High Yield Master II Index rose 0.3% over the week. Returns in 2016 were positive, with the index up by 3.6% YTD.
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 rose by 0.2% and 0.4%, respectively.
Popular ETFs providing exposure to high yield debt rose over the week. The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the SPDR Barclays Capital High Yield Bond ETF (JNK) rose 0.5% each over the week ended April 1.
In the primary market, Western Digital (WDC), T-Mobile US (TMUS), HD Supply (HDS), and Zayo Group, a subsidiary of Zayo Group Holdings (ZAYO), were some of the issuers of high yield bonds. 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.