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Investment-Grade Bond Fund Flows Rose Slightly Last Week

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Investor flows

Flows into investment-grade bond funds were positive for the sixth consecutive week. According to Lipper funds flow data, investment-grade bond funds saw net inflows of $2.52 billion during the week ending August 10. This was slightly higher than the net inflows of $2.47 billion in the week ending August 3. Investment-grade bond funds have seen year-to-date net inflows of $25.8 billion, as of August 10.

Meanwhile, investment-grade bond issuance fell from $51.5 billion in the previous week to $45.0 billion last week.

In the week ending August 12, Westpac Banking Corporation (WBK), Duke Energy Corporation (DUK), Amgen (AMGN), and Berkshire Hathway (BRK.A) were among large issuers of investment-grade bonds. You can read the details of these issues in the fourth part of this series.

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Yield and spread analysis of corporate high-quality debt securities

Investment-grade bond yields usually follow cues from the Treasuries market. Last week, Treasury yields mostly fell across the yield curve after disappointing advance retail sales and producer price index data lowered the prospects of an interest rate hike in 2016. Investment-grade corporate bond yields also fell last week.

For the week ending August 12, yields fell 7 basis points and ended at 2.78%, according to the BofA Merrill Lynch US Corporate Master Effective Yield. The Vanguard Total Bond Market ETF (BND) and the iShares Intermediate Credit Bond ETF (CIU) rose 0.4% and 0.3%, respectively, in the same period.

Like yields, the OAS (option-adjusted spread) fell 4 basis points last week and ended at 1.45% on August 12. Meanwhile, spreads fell 28 basis points on a year-to-date basis. The OAS measures the average difference in yields between investment-grade bonds and Treasuries. Thus, a fall in this spread implied that the risk of high-grade bonds decreased relative to the risk of Treasuries.

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