After the sell-off over the past month, junk bond exchange traded funds are strengthening again as bargain hunters look for opportunities in the fixed-income market.
On Tuesday, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) and the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK), the two largest junk bond ETFs by assets, jumped 0.7% and 0.5%, respectively. Since the August 26 high, HYG has declined 2.7% and JNK dropped 3.2%. [Shake Up in Junk Bond ETFs]
According to Bank of America Merrill Lynch data, junk debt is on pace for their worst monthly returns in over a year, with average yields on bonds rising to 6.74% from 5.96% at the start of the September. HYG shows a 4.84% 30-day SEC yield and JNK has a 5.47% 30-day SEC yield.
Now that high-yield bonds look cheaper after the sell-off, analysts from Bank of America to BlackRock argue that there is a buying opportunity in the junk bond market, Bloomberg reports.
Bank of America analysts argue that “now is the time to take advantage of the fear that has gripped the market,” especially since there were no changes to the fundamentals and no deterioration to credit quality to justify the selling.
“I think the high-yield selloff is going to be an opportunity,” Jim Keenan, head of credit at BlackRock, said in the article. “The economy looks like it’s in good shape, corporates are really in good shape. We’re looking for opportunities to buy assets that we like at this point of the market.”
The fixed-income market also experienced a round of risk-off trades after Bill Gross announced his departure from PIMCO, the Federal Reserve moved closer to unwinding its loose monetary policies and geopolitical tensions.