2 Sep

Investment-Grade Bond Funds Witness Largest Outflow of 2015

WRITTEN BY Lynn Noah FEATURED IN Macroeconomic Analysis

Investor flows

Flows into investment-grade bond funds were negative for the week ended August 26, making it the fifth successive week of outflows. Investment-grade bond funds saw net outflows of $1.99 billion in the week, the largest outflow of 2015 so far. This compares to outflows of $1.09 billion in the week ended August 19.

Investment-Grade Bond Funds Witness Largest Outflow of 2015

Last week, there was only one issuance, with no corporate issues hitting the market. So let’s look at the issues for the week ended August 21.

In the week ended August 21, 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.

Yields analysis for corporate high-quality debt securities

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

Investment-grade corporate bond yields took cues from Treasuries and rose. They had touched a year-to-date 2015 high of 3.46% on August 26 but ended at 3.45% on August 28. That was up 11 basis points from the previous week, according to the BofA Merrill Lynch US Corporate Master Effective Yield.

The option-adjusted spread (or OAS) remain unchanged week-over-week to end at 1.69% on August 28. The OAS measures the average difference in yields between investment-grade bonds and Treasuries. Thus, a rise in this spread implies that the risk of high-grade bonds relative to Treasuries increased.

Investment-grade debt mutual funds post negative returns

As yields rose, returns on investment-grade bond mutual funds fell. The Oppenheimer Core Bond Fund (OPIGX) and the Prudential Total Return Bond Fund (PDBAX) invest more than 50% of their assets in investment-grade corporate bonds. They fell 0.52% and 0.67%, respectively, week-over-week.

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

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