Investment-Grade Bond Funds Continue to Witness Inflows

Investor Flows

Flows into investment-grade bond funds were positive for the fourth consecutive week. According to Lipper funds flow data, investment-grade bond funds saw net inflows of $1.5 billion during the week ending July 27. This was higher compared to net inflows of $894.4 million in the week ending July 20.

Investment-grade bond funds have seen YTD (year-to-date) net inflows of $20.8 billion up to July 27, 2016.

Investment-Grade Bond Funds Continue to Witness Inflows

Meanwhile, investment-grade bond issuance rose from $30.3 billion in the previous week to $32.7 billion last week.

In the week to July 29, Apple (AAPL), Verizon Communications (VZ), Citigroup (C), and Royal Bank of Canada (RY) were among the large issuers of investment-grade bonds. You can read the details of these issues in Part 4 of this series.

Corporate high-quality debt securities

Investment-grade bond yields usually follow cues from the Treasuries market. Last week, the Treasury yield curve fell across the yield curve after disappointing economic growth data diminished the rate hike expectations in 2016. Investment-grade corporate bond yields were also down last week.

For the week ending July 29, the yields fell 6 basis points and ended at 2.8% on July 29—the lowest since May 13, 2013, according to the BofA Merrill Lynch US Corporate Master Effective Yield. The Vanguard Total Bond Market Index Fund (BND) and the iShares Intermediate Credit Bond ETF (CIU) rose 0.5% and 0.4%, respectively, in the same period.

Like yields, the OAS (option-adjusted spread) rose 3 basis points last week and ended at 1.50% on July 29. The OAS measures the average difference in yields between investment-grade bonds and Treasuries. A rise in this spread implied that the risk of high-grade bonds relative to Treasuries increased.