Junk Bond ETF Yielding Over 6% Sees Record Bearish Bets
December 24th, 2012 at 11:33am by John Spence
Some traders are betting against a high-yield bond ETF with over $16 billion in assets that has posted strong performance this year as investors stretch for income. These bearish traders expect a turnaround in junk debt and are using ETF options to express their view.
Short interest in iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) is at an all-time high, WSJ.com’s MarketBeat reports.
The high-yield ETF has posted a total return of about 11% this year. In a low-rate environment, investors are taking on more risk in corporate bonds, particularly the high-yield sector, as they hunt for income. HYG has a distribution yield of 6.5%, according to manager BlackRock (NYSE: BLK). [High-Yield ETFs Suffer Outflows]
“Speculators appear to be upping their bets that the end is nigh for a long-running rally in ‘junk’ bonds,” MarketBeat reports.
Matt Tucker, head of BlackRock’s iShares fixed-income strategy, told WSJ.com he doesn’t think the bearish bets are impacting the price of HYG for now, but that it is “a sign there are some investors who think we may be near the top of the high-yield market.”
iShares iBoxx High Yield Corporate Bond
Full disclosure: Tom Lydon’s clients own HYG.
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.