Investors Jumping Back Into Junk Bond ETFs

July 19th at 8:15am by Tom Lydon

Some income investors are finding value in high-yield corporate bond ETFs after the funds sold off on Federal Reserve tapering fears.

The largest junk bond ETFs, iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) and SPDR Barclays High Yield Bond (NYSEArca: JNK), have added $588 million and $279.6 million in assets, respectively, over the past week, according to IndexUniverse data.

“Junk bonds are back on the mend following their recent brush with de-leveraging and interest-rate risk, with the average yield across the high-yield market dipping below 6% again,” reports Michael Aneiro at Barron’s.

“[We] saw a lot of buying activity in the high yield space today,” said WallachBeth Capital in a note on ETF trading activity Thursday.

However, the two funds together have seen about $3 billion move out the door so far this year.

Heavy redemptions in junk bonds materialized after the Fed hinted at an end to bond purchases and interest rates began to rise, reports Vivianne Rodrigues for Financial Times.

Fed chief Bernanke quelled some market fears, stating that that the Fed will maintain accommodate measures for the foreseeable future. [Investors Buying High-Yield ETFs with Shorter Durations for Rate Protection]

Consequently, average yields on junk bonds have diminished almost 60 basis points over the past week — bond yields have an inverse relationship to bond prices, so a falling yield corresponds with rising prices.

“Income-hungry investors are once again willing to camp out in ‘Tornado Alley’ to collect a little extra yield,” Marty Fridson, chief executive at FridsonVision, said in the article. “[But] with memories of the last flight from high-yield bonds still fresh, the next one is likely to represent an even uglier scene of panic.”

iShares iBoxx High Yield Corporate Bond

For more information on speculative grade debt, visit our junk bonds category.

Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own HYG and JNK.

The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.

Tickers

HYG JNK