Investors continue to embrace risk and yield before Thursday’s highly anticipated Federal Reserve announcement. High-yield ETFs are breaking out again with junk bond yields dropping to record lows.
“The early September pre-FOMC risk-on rally continues to push the junk-bond market to improbable heights, with the average junk-bond yield falling below 6.5% for the first time ever,” writes Michael Aneiro for Barron’s.
SPDR Barclays Capital High Yield Bond (NYSEArca: JNK) and iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) are the largest junk bond ETFs. Both funds were trading at 52-week highs on Wednesday. [A Tale of Two High-Yield ETFs]
HYG is breaking through resistance that had been in place for more than a year, according to Bespoke Investment Group. “With the resistance out of the way and now acting as support, the technicals certainly look strong for junk bonds,” the firm notes.
The two junk-bond ETFs are offering 30-day SEC yields of about 6%.
PIMCO 0-5 Year High Yield Corporate Bond Index Fund (NYSEArca: HYS) and PowerShares High Yield Corporate Bond Portfolio (NYSEArca: PHB) are other popular ETFs for junk bonds. [PIMCO High-Yield Bond ETF is Morningstar’s Pick]
Full disclosure: Tom Lydon’s clients own HYG and JNK.