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 $410 million in the week ending April 20. In the previous week, high-yield bond funds saw net inflows of $85 million. With inflows last week, high-yield bond funds witnessed YTD (year-to-date) inflows of $9.4 billion.
Yields and spreads analysis
Yields on high-yield debt and spreads between high-yield debt and Treasuries fell sharply over the week ending April 22, 2016. Yields have been hardening while spreads have been constantly tightening since mid-February onwards. That means that investors are willing to accept lower compensation for credit risk. Economic indicators show that domestic economic growth remains positive and oil prices have stabilized to a certain extent.
High-yield debt yields, as represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield, fell 19 basis points from a week ago and ended at 7.7% on April 22, 2016—the lowest YTD.
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 39 basis points from last week. It ended at 6.6% on April 22—the lowest YTD.
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 April 22. The BofA Merrill Lynch U.S. High Yield Master II Index rose 1.1% over the week. The returns in 2016 were positive. The index rose by 6.9% 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 return of AHITX and PHDAX rose by 1.1% and 0.8%, respectively.
Popular ETFs providing exposure to high-yield debt rose over the week. The prices of the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the SPDR Barclays Capital High Yield Bond ETF (JNK) rose 1.1% and 1.4%, respectively, over the week ending April 22.
In the primary market, Prime Security Services—a subsidiary of Apollo Global Management (APO), Altice Financing SA—a subsidiary of Altice SA, Altice US Finance I Corporation, and NBTY (NTY) were some of 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 the primary market activity in leveraged loans.