Investor flows into high-yield bond funds
Investor flows into high-yield bond funds were positive after three consecutive weeks of negative outflows. According to Lipper, net inflows into high-yield bond funds totaled $1.8 billion in the week ended July 6, 2016.
In the previous week, high-yield bond funds had seen large outflows of $1.6 billion. With the outflows last week, high-yield bond funds have witnessed year-to-date (or YTD) inflows of $5.0 billion.
Yields and spreads analysis
Yields on high-yield debt and spreads between high-yield debt and U.S. Treasuries fell sharply over the week ended July 8, 2016. High yield debt yields, as represented by the BofA Merrill Lynch U.S. High Yield Master II Effective Yield, fell 29 basis points from a week ago and ended at 6.9% on July 8, 2016. It was the lowest since July 23, 2015.
Like yields, the option adjusted spread (or OAS) also plunged last week. The BofA Merrill Lynch U.S. High Yield Master II Option-Adjusted Spread fell 24 basis points from last week to end at 5.9% on July 8.
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 July 8. The BofA Merrill Lynch U.S. High Yield Master II Index rose 1.0% over the week. Returns in 2016 were positive, with the index rising 11.2% 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 0.8% and 0.9%, respectively.
Popular ETFs providing exposure to high-yield debt rose over the week. The prices of the iShares iBoxx $ High Yield Corporate Bond (HYG) and the SPDR Barclays Capital High Yield Bond ETF (JNK) rose 1.3% and 1.5%, respectively, for the week ended July 8.
In the primary market, only one deal—Transocean (RIG)—got priced last week.
In the next part of the series, we’ll analyze primary market activity in leveraged loans.