U.S. Markets open in 1 hr 7 mins

Why high yield bond ETFs closed tighter on the month for November

James Malthus, Macro Analyst

Fixed income recap: Key ideas for the week of December 2 (Part 2 of 3)

(Continued from Part 1)

Corporate spreads tighten slightly on the month

The continuing economic recovery led spreads (the difference between corporate yields and Treasury yields) on bonds to tighten in November. Spreads tend to move on a relative basis to each other, as opposed to an absolute basis. For example, if spreads on investment-grade bonds tighten 10 basis points from 1.00% to 0.90%, you should expect spreads on high yield bonds at 5.00% to tighten 50 basis points, since both moves would be the same on a relative basis. This relationship was in play in November, as the spreads tightened across all ratings buckets.

High yield bond funds continued to see inflows last week, with investors adding $433 million, setting the high point for 2013.

Leveraged loans (BKLN) increased weekly inflows to $823 million after falling a bit the week prior. Thirty-four loans priced, averaging $740 million per deal. Despite the favorable technicals, the PowerShares Senior Loan ETF (BKLN) was unchanged on the week.

Read on to find out what catalysts could affect fixed-income markets this week.

Continue to Part 3

Browse this series on Market Realist: