Flows into investment-grade bond funds were positive for the fifth consecutive week in the week ended August 3, 2016. According to Lipper funds flow data, investment-grade bond funds saw net inflows of $2.5 billion during the week. This was higher compared to net inflows of $1.5 billion in the week ended July 27, 2016.
Investment-grade bond funds have seen year-to-date net inflows of $23.3 billion up to August 3, 2016.
Investment-grade bond issuance increased from $32.7 billion in the previous week to $51.5 billion last week.
In the week to August 5, 2016, Microsoft (MSFT); UBS Group Funding (Jersey), a subsidiary of UBS Group AG (UBS); JPMorgan Chase (JPM), and International Paper (IP) were the large issuers of investment-grade bonds. You can read the details of these issues in Part 4 of this series.
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 rose across the yield curve after an upbeat jobs report raised expectations of a rate hike in 2016. Investment-grade corporate bond yields also increased last week.
For the week ended August 5, 2016, yields rose 8 basis points and ended at 2.9% on August 5, according to the BofA Merrill Lynch US Corporate Master Effective Yield. The Vanguard Total Bond Market ETF (BND) and the iShares Intermediate Credit Bond (CIU) fell 0.8% and 0.6%, respectively, in the same period.
Unlike yields, the option-adjusted spread (or OAS) fell 1 basis point last week and ended at 1.5% on August 5. Meanwhile, spreads fell 24 basis points on a year-to-date basis. OAS measures the average difference in yields between investment-grade bonds and Treasuries. So a fall in this spread implies that the risk of high-grade bonds relative to Treasuries decreased.