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Why the investment-grade bond funds flow growth declined last week

Chanderlekha Nayar

Weekly review: How the US Treasuries and corporate bonds performed (Part 9 of 10)

(Continued from Part 8)

Headwinds–weak demand or less supply?

Considering the fact that Exxon Mobil Corporation’s issuance (XOM) (which we discussed in part 8) was fairly welcomed in the market, it seems like last week’s funds flow decline was merely a reaction to low supply available in the market. Nearly $2.2 billion funds have been invested in the Investment-Grade corporate bonds (LQD) —$1.0 billion lesser than the previous week’s funds flow of $3.2 billion.

The funds flow for the month of March 2014 totaled $7.9 billion compared to $9.9 billion for the month of February 2014.

Overall, the bond market recorded a positive funds flow last week. The Vanguard Total Bond Market ETF (BND), which seeks the performance of a broad, market-weighted bond index, posted a weekly inflow of $55.8 million. The one-month funds flow was also positive at 20.2 million, indicating the investors are moving toward the safer fixed income asset class. Movement picked up last week as the Fed continued the taper on the expectation that economy is growing and hinted that it would increase the interest rate sometime late in 2015, or the beginning of 2016. The U.S. equity market (SPY) spurred with nearly $230.4 million of fund inflows.

The investment-grade corporate bond tradable equivalents such as iSharesIBoxx $ Investment Grade Corporate Bond Fund (LQD) posted an inflow of $21.8 million last week, a reversal to the previous week’s outflow of $28.1 million. The LQD ETF price gained 0.07% despite the rise in the U.S. ten-year Treasury yield, which ended the week at 2.75%.

iShares IBoxx $ Investment Grade Corporate Bond Fund (LQD) with top holdings in the Verizon Communications (VZ) and Apple (AAPL) seeks investment results that correspond to the price and yield performance, before fees and expenses, of the corporate bond market as defined by the iBoxx $ Liquid Investment Grade Index. Verizon Communications (VZ) is an American broadband and telecommunications provider, while Apple (AAPL) is an American multinational corporation that designs, develops, and sells consumer electronics, computer software, and personal computers. The ETF with gross expense ratio of 0.15% posted a one-month funds inflow of $56.2 million.

Continue to Part 10

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