Yahoo Finance Why investor flows in high-grade bond funds rose
Investment-grade corporate bonds see second-highest issue on record (Part 5 of 6)
Investor flows
The pace of inflows into investment-grade (LQD) bond mutual funds picked up in the week ended March 6. Investment-grade bond (AGG) mutual funds saw net inflows of $1.6 billion in the week. This was up by 24.2% from the previous week in which inflows worth $1.3 billion were recorded.
As we saw earlier, activity in the investment-grade corporate bond market has increased. Large issues like those for Actavis (ACT), Exxon Mobil (XOM), and Abbott Laboratories (ABT) have investors rushing for their bonds due to better yields than Treasuries. Issuers such as XOM and ABT have good credit ratings, thus making them safer bets than other corporate issuers.
Yields analysis for corporate high-quality debt securities
Investment-grade bond yields usually follow cues from the Treasuries market. Due to rising Treasury yields, investment-grade corporate bond yields increased by 12 bps (basis points) over the week. They came in at 3.14% on March 6.
However, the option-adjusted spread (or OAS) fell to 1.29% over the week, down 11 bps 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 decreased.
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), fell by 2.2%, 1.3%, and 1.2%, respectively, over the week ended March 6.
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