27 Aug

Investment-Grade Bond Funds See Outflows for 4 Consecutive Weeks

WRITTEN BY Lynn Noah FEATURED IN Macroeconomic Analysis

Investor flows

Flows into investment-grade bond funds were negative for the week ended August 21, making it the fourth successive week of outflows. Investment-grade bond funds saw net outflows of $1.09 billion in the week. This compared to outflows amounting to $1.85 billion in the week ended August 12.

With these outflows, investment-grade bonds have attracted inflows worth $25.17 billion in 2015 year-to-date.

Investment-Grade Bond Funds See Outflows for 4 Consecutive Weeks

Last week, issues such as Deutsche Bank AG (DB), Fifth Third Bank (FITB), Abbey National Treasury Services, Plains All American Pipeline (PAA), and The Hershey Company (HSY) were among the biggest issuers of investment-grade corporate bonds in the week ended August 21. You can read the details of these issues in part 4 of this series.

Yields analysis for corporate high-quality debt securities

Investment-grade bond yields usually follow cues from the Treasuries market. Treasury yields fell across the yield curve week-over-week, with yields falling in double digits in the intermediate-term and long-term securities.

Investment-grade corporate bond yields took cues from Treasury securities and fell. They had touched a year-to-date 2015 high of 3.42% on August 18 but ended lower at 3.34% on August 21. This was down 7 basis points from the previous week, according to the BofA Merrill Lynch US Corporate Master Effective Yield.

The option-adjusted spread (or OAS) rose 5 basis points week-over-week to end at 1.69%. The OAS measures the average difference in yields between investment-grade bonds and Treasuries. So a rise in this spread implies that the risk of high-grade bonds relative to Treasuries increased.

Investment-grade debt mutual funds post positive returns

As yields fell, returns of investment-grade bond mutual funds rose. The Oppenheimer Core Bond Fund (OPIGX) invests ~54% of its assets in investment-grade corporate bonds. OPIGX was up 0.5% in the week ended August 21, 2015.

In the same period, the Prudential Total Return Bond Fund’s (PDBAX) weekly returns were 0.4%. The fund invests ~61% of its assets in investment-grade corporate bonds.

For more bond market trends and analyses, please visit Market Realist’s Fixed Income ETFs page.

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