The bond exchange traded fund (ETF) market has a life of its own, under the cover of equities, similar to their smoother counterpart James Bond.

Investors have been avoiding the riskier areas of the credit market for the majority of the year, as inflation looms and economic slowing is a threat. High-yield bonds, aka junk, lag investment-grade corporate issues and have been hard hit this year, reports Murray Coleman for Index Universe.

iShares iBoxx Investment Grade Corporate Bond Index (LQD) is down 0.8% year-to-date, iShares iBoxx High-Yield Corporate Bond (HYG) is down 1.6% year-to-date, the PowerShares High Yield Corporate Bond (PHB) is off by 4.1%, and the SPDR Lehman High Yield Bond Report (JNK) is down 2.9%.

This downward trend began last spring, as credit meltdowns were oozing into different parts of the market. As of late, though, junk bond funds have been doing better than their rivals as the bargain hunters come out. It should also be noted that all of the funds are in the top tiers in terms of credit quality and invest little in C-rated bonds.

The trend of Treasuries outperforming is starting to lay down, according to Phil Fang of PowerShares, and junk bonds may get their moment in the spotlight. The eight-month rush to quality by investors sent the price of high-yield bond ETFs tumbling. An extended sell off will make junk more attractive as a diversification tool instead, says Hougan.

Tags: Bond ETFs