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 $296 million in the week ending April 27. In the previous week, high-yield bond funds saw net inflows of $410 million. With the inflows last week, high-yield bond funds have witnessed YTD (year-to-date) inflows of $9.7 billion.
Yields and spreads analysis
Yields on high-yield debt and spreads between high-yield debt and Treasuries fell over the week ending April 29, 2016. Yields have been hardening while spreads have been constantly tightening since mid-February. That means that investors are willing to accept lower compensation for credit risk as the US economy shows signs of improvement.
High-yield debt yields, as represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield, fell to 7.6% on April 28—the lowest since November 6, 2015. Meanwhile, they fell 13 basis points from a week ago and ended at 7.6% on April 29, 2016.
Like yields, the Option-Adjusted Spread fell in the week. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread fell to 6.2% on April 28—the lowest since November 18, 2015. It fell five basis points from last week. It ended at 6.2% on April 29.
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 29. The BofA Merrill Lynch U.S. High Yield Master II Index rose 0.8% over the week. The returns in 2016 were positive. The index has risen by 7.7% 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. AHITX and PHDAX’s weekly returns rose by 0.6% and 0.1%, 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 0.5% and 0.7%, respectively, over the week ending April 29.
In the primary market, Ardagh Holdings—a subsidiary of Ardagh Group SA, United Rentals (URI), PQ Corporation, and Kaiser Aluminum (KALU) 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 primary market activity in leveraged loans.