High-yield corporate bond ETFs have been among the top-selling funds in 2012 after enjoying gains of more than 20% the past year.
The iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) and SPDR Barclays Capital High Yield Bond (NYSEArca: JNK) have gathered year-to-date inflows of $5.8 billion and $2.9 billion, respectively.
They are the two largest junk bond ETFs and are paying dividend yields of about 7%.
Now some money managers are cautioning so many investors jumping into junk bonds are creating bubble conditions that could end badly. [Cracks Showing in High-Yield Bond ETFs]
“So much money has flooded into the junk-bond market from yield-hungry investors that weaker and weaker companies are able to sell bonds,” The Wall Street Journal reports. “Credit ratings of many borrowers are lower and debt levels are higher, making defaults more likely. And with yields near record lows, they add, investors aren’t being compensated for that risk.”
Inflows to high-yield bond funds have climbed to a record this year at $34 billion, the newspaper says.
The rush to junk bonds and investors stretching for income are no surprise with the 10-year Treasury note yielding a paltry 1.7%. [Fixed-Income ETFs for Yield: Junk Bonds, Emerging Markets and More]
However, junk bond funds recently saw their first weekly outflow in four months.