Investor flows into high yield bond funds
Investor flows into high yield bond funds were positive after two consecutive weeks of negative flows. According to Lipper, net inflows from high yield bond funds totaled $1.1 billion in the week ended May 18, 2016.
In the previous week, high yield bond funds had seen net outflows of $1.9 billion. With last week’s inflows, high yield bond funds have witnessed year-to-date (or YTD) inflows of $7.1 billion.
Yields and spreads analysis
Both yields on high yield debt and spreads between high yield debt and Treasuries fell in the week ended May 20, 2016.
High yield debt yields as represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield fell five basis points from a week prior, ending up at 7.7% on May 20, 2016.
Like yields, the option-adjusted spread also fell last week. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread fell by 19 basis points from the previous week to end at 6.2% on May 20.
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 rose in the week ended May 20, 2016. The BofA Merrill Lynch U.S. High Yield Master II Index rose 0.2% in the week. Returns in 2016 were positive, with the index up by 7.5% 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 AHITX rose marginally by 0.1%, while the PHDAX fell by 0.2%.
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 0.4% and 0.5%, respectively, in the week ended May 20.
In the next article, we’ll analyze primary market activity in leveraged loans.