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 $562 million in the week ended May 25, 2016. In the previous week, high-yield bond funds saw net inflows of $1.1 billion. With the outflows last week, high-yield bond funds have witnessed year-to-date (or YTD) inflows of $6.5 billion.
Yields and spreads analysis
Yields on high-yield debt and spreads between high-yield debt and Treasuries both fell over the week ended May 27, 2016.
High-yield debt yields, represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield, fell 15 basis points from the previous week. They ended at 7.5% on May 27, 2016, the lowest since November 4, 2015.
Like yields, the option adjusted spread (or OAS) also fell last week. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread fell 14 basis points last week to end at 6.1% on May 27, 2016, the lowest since November 12, 2015.
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 27, 2016. The BofA Merrill Lynch U.S. High Yield Master II Index rose 0.8% over the week. Returns in 2016 were positive, with the index up by 8.4% 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 rose 0.7% and 0.8%, respectively.
Popular ETFs providing exposure to high-yield debt rose over the week. Prices of the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the SPDR Barclays High Yield Bond ETF (JNK) rose 0.7% and 0.8%, respectively, for the week ended May 27.
In the primary market, Albertsons Companies, Teck Resources (TCK), TransDigm Group (TDG), and Hertz Equipment Rental, a wholly owned subsidiary of Hertz Global Holdings (HTZ), were some of the large 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 look at primary market activity in leveraged loans.