Inflows in high-grade bond funds continue but fall

Investment-grade corporate bonds have back-to-back $60 billion issuances (Part 5 of 5)

(Continued from Part 4)

Investor flows

The pace of inflows into investment-grade (LQD) bond mutual funds slowed down in the week ended March 13. Investment-grade bond (AGG) mutual funds saw net inflows of $571.5 million in the week. This was down by 65.2% from the previous week in which inflows worth $1.6 billion were recorded.

Aside from the fall in inflows, investment-grade bonds have attracted inflows of $21.7 billion in 2015 so far. This is more than two times higher than their junk bond counterparts.

High-grade bond issuance remained unabated in the week to March 13, making it the second as well as the back-to-back week of more than $60 billion issues. Bond issues were more evenly spread than the previous week’s lopsided $21 billion issue by Actavis (ACT).

Zimmer Holdings (ZMH), The J.M. Smucker Company (SJM), ING Groep N.V. (ING), and Barclays PLC (BCS) were among the large issuers of last week.

Yields analysis for corporate high-quality debt securities

Investment-grade bond yields usually follow cues from the Treasuries market. Due to a fall in Treasury yields, investment-grade corporate bond yields fell by 7 basis points over the week. They came in at 3.07% on March 13.

However, the option-adjusted spread (or OAS) rose to 1.34% over the week, up 5 basis points from the previous week. The OAS measures the average difference in yields between investment-grade bonds and Treasuries. Thus, this spread implied that the risk of high-grade bonds relative to Treasuries increased.

Prices of investment-grade debt ETFs decrease

Yields on fixed-income instruments and their prices have an inverse relationship. Due to an increase in yields, the price of investment-grade bond ETFs, including the iShares iBoxx $ Investment Grade Corporate Bond Fund (LQD), the Core Total U.S. Bond Market ETF (AGG), and the Vanguard Total Bond Market ETF (BND), rose by 0.7%, 0.6%, and 0.6%, respectively, over the week ended March 13.

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

Browse this series on Market Realist:

• Part 1 - Why did corporate bond yields fall last week?

• Part 2 - Corporate bond yields rise, spreads fall in 2015

• Part 3 - High-grade corporate bonds hit second-highest issuance of 2015