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High-Yield Bond Funds Witnessed Large Outflows

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Investor flows into high-yield bond funds

Investor flows into high-yield bond funds were negative last week. According to Lipper, net outflows from high-yield bond funds totaled $1.8 billion— the third highest outflows YTD (year-to-date)—in the week ending April 27. In the previous week, high-yield bond funds saw net inflows of $296 million. With the outflows last week, high-yield bond funds witnessed YTD inflows of $7.8 billion.

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Yields and spreads analysis

Yields on high-yield debt and spreads between high-yield debt and Treasuries rose over the week ending May 6, 2016. Market participants were concerned about the high risk associated with high-yield bonds in the near term in the wake of sluggish global growth.

High-yield debt yields, as represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield, rose 21 basis points from a week ago and ended at 7.80% on May 6, 2016.

Like yields, the Option-Adjusted Spread also rose last week. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread rose 24 basis points from last week to end at 6.5% on May 6.

Returns on high-yield debt indices, mutual funds, and ETFs

Bond yields and prices move in opposite directions. With yields rising, returns on high-yield debt fell in the week ending May 6. The BofA Merrill Lynch U.S. High Yield Master II Index fell 0.9% over the week. The returns in 2016 were positive. The index rose by 7.0% 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 fell by 0.9% and 1.1%, 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) fell 1.1% and 1.2%, respectively, over the week ending May 6.

In the primary market, Hanesbrands (HBI), U.S. Steel (X), PTC (PTC), and Mobile Mini (MINI) were some of the issuers of high-yield bonds. You can read more about primary market activity in Part 3 of this series.

In the next part, we’ll analyze primary market activity in leveraged loans.

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