The weakness in the high-yield bond exchange traded fund space is being exacerbated by rapid redemptions. However, the problems seem to be confined to junk-rated corporate bonds for now as other areas of the fixed-income market remain relatively intact.
The iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) has dipped 0.7% over the past month while the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) fell 0.8%. Year-to-date, HYG is up 4.3% and JNK gained 4.8%.
In the week ending July 23, investors pulled $441.5 million from HYG and $113 million from JNK. [Investors Getting Skittish With Junk Bond ETFs]
Lipper data revealed that junk-bond mutual funds and ETFs experienced $2.38 billion in net outflows in the week ended July 23, up from the $1.67 billion in outflows in the week prior, reports Michael Aneiro for Barron’s.
Bank of America Merrill Lynch credit strategist Yuriy Shchuchinov argues that the fund outflows are effect of the market’s poor performance.
“As flows typically follow returns, the outflows are likely a result of the selloff in high yield bonds so far in July, although valuations have rebounded somewhat last week,” Shchuchinov said in the article.
Barclays credit strategists Jeffrey Meli and Bradley Rogoff, though, argue that the high-yield bond market currently weakening because of the outflows in high-yield funds.
“The move in high yield has been driven in large part by significant outflows from high yield mutual funds and ETFs,” the Barclays analyst said in the article. “Outflows began in early July, with the High Yield Index yielding less than 5%, but continued even as spreads/yields backed up. Month-to-date high yield mutual fund outflows have totaled $3.8bn. Separately, high yield ETFs have seen $2.2bn of redemptions over the same period; for instance, total shares outstanding of HYG and JNK have declined 7% and 4% month-to-date, respectively.”