International High-Yield Bond ETFs for Income
August 12th 2013 at 2:00pm by Tom Lydon
International high-yield bond exchange traded funds are outpacing U.S. junk bonds as European speculative-grade debt rose for the sixth consecutive week.
The Market Vectors International High Yield Bond ETF (NYSEArca: IHY) has gained 0.5% over the past week and is up 4.0% over the last month, and the iShares Global ex USD High Yield Corporate Bond ETF (NSYEArca: HYXU) is 1.8% higher over the last week and increased 6.4% over the past month.
In comparison, the SPDR Barclays High Yield Bond ETF (NYSEARca: JNK) is flat over the past week and rose 1.3% over the past month.
Junk-rated European corporate bonds returned 0.2% this week, accumulating a six-week gain of 2.1% after falling an average 2.3% in June, Bloomberg reports.
In the last two weeks of July, European high-yield debt returned 0.84%, whereas U.S. high-yield debt lost 0.4%, Robert Smith for Reuters reports.
U.S. junk bond mutual funds experienced $1 billion in outflows last week while European high-yield funds brought in $231 million.
European debt markets are rebounding after the Fed reaffirmed its “accommodative” monetary policies until the U.S. economy improved. [A High-Yield Bond ETF for Rising Rates]
“Credit markets have been fairly resilient so far in August,” Joseph Faith, a credit strategist at Citigroup Inc., said in the Bloomberg. “Uncertainty may rise again going into September but we still expect spreads to end the year tighter than where they are now.”
Additionally, some argue that European debt now offers better credit quality protection and insulation from rate hikes, compared to U.S. debt.
“The European high yield market definitely looks more attractive compared to the US, particularly given that credit quality is on average better in Europe,” Jorgen Kjaersgaard, a high yield portfolio manager at AllianceBernstein, said in the Reuters article. “With bund yields at 1.6% and, in contrast to the US, no cliff risk of a rates move, there is a very strong support in the market.”
The Market Vectors IHY ETF provides bond exposure to a number of European countries, including the U.K. 16.5%, Luxembourg 12.4%, Netherlands 10.5%, France 10%, Germany 5.0%, Ireland 4.0%, Italy 2.3%, Spain 1.8%, Denmark 1.6%, Finland 1.2%, Sweden 1.0% and Portugal 1.0%. IHY has a 0.40% expense ratio and a 5.65% 30-day SEC yield.
The iShares HYXU ETF also includes exposure to European countries France 15.2%, Netherlands 13.4%, Luxembourg 12.7%, U.K. 12.7%, Germany 8.6%, Italy 7.2%, Spain 4.5%, Ireland 3.9% and Denmark 2.4%. HYXU has a 0.40% expense ratio and a 4.81% 30-day SEC yield.
iShares Global ex USD High Yield Corporate Bond ETF
For more information on high-yield, speculative grade debt , visit our high-yield bonds category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own 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.