Blumenthal writes that short-term options are the best way to guarantee that the money you put in will be given back later. For long-term and intermediate-term investors, intermediate-term and high-yield funds might work fine over time. If interest rates rise, bond prices will crumble, hurting intermediate-term bonds if you need the money sooner rather than later.

If interest rates rise quickly, then longer-term bond  ETFs can serve a portfolio well. (How bonds can be part of your investment strategy).

While high yields are great, consider other factors before diving in. The fund should be right for you, your goals and your time horizon. As with any ETF type, it’s also wise to employ a strategy of exit and entry when buying and selling bond funds. (When it’s time to exit bond ETFs).

For more stories about bond ETFs, visit our bond category.

• SPDR Barclays Capital High Yield Bond (NYSEArca: JNK): up 32.8% year-to-date; yields 12.5%

• iShares iBoxx $ High Yield Corporate Bond (NYSEArca: HYG): up 24.5% year-to-date; yields 9.8%

Worldwide, investors have purchased more than $2.7 trillion of new corporate bonds this year, reports Kate Haywood for The Wall Street Journal. Contrast that with $1.7 trillion in 2008, which is when the financial crisis all but brought the flow of cash to a standstill. (Why junk bonds are in demand).

Junk bond issuers have used about 75% of proceeds from sales to refinance existing debt, the highest proportion since record-keeping began in 1996. Corporate bond sales have been a boon to many companies, giving them a lifeline as they wait for banks to resume normal lending.

“Junk,” or high-yield, refers to a bond rated “BB” or lower because of a high default risk. The main reason junk bonds have had a good year is simply that investors have some risk appetite to spare again, explains Matt Krantz for USA Today. (Other types of bonds that have done well in this market).

After the terror of the March pullback and the major market meltdown leveled off this year, investors began to put their money into investment-grade and junk bonds and took a step back from the safety of government debt.

While junk bonds have higher risk, they will do fine so long as investors risk appetite is steady. If the economy doesn’t heal or if companies increasingly default on their debt, you could find yourself suffering large losses. (When is it time to exit the bond market?)

What can you do about it? Have an exit strategy when the trend turns. (Why stop losses matter).

For more stories about bond ETFs, visit our Bond category.

A sample of such ETFs:

• SPDR Barclays Capital High Yield Junk (NYSEArca:JNK): up 30.9% year-to-date

• iShares iBoxx $ High Yield Corporate Bond (NYSEArca: HYG): up 24.4% year-to-date

• Vanguard Total Bond Market (NYSEArca: BND): up 3.8% year-to-date

On the one hand, sterling corporate bond prices have been rising. This has been pushing yields down, causing some to second guess whether corporate bonds are the place to be. (More on the corporate bond ETF wave). If this turns out to be the case, then a massive selloff could result, states Matthew Vincent of The Financial Times.

However, analysis of corporate bond spreads tells a different story. Spreads, better known as the difference between the yields on corporate bonds and on safer government bonds,  widened to record levels after Lehman Brothers collapsed last year.

Corporate bond prices fell rapidly in anticipation of widespread defaults by other issuers. This pushed the effective yields from bonds’ fixed-income payouts up toward double figures, suggesting that they are not overbought.  To add icing to the cake, it appears that supply for these bonds, in particular the more risky junk bonds, cannot keep up with demand. (What you should know about junk bond ETFs).

An easy way to access the junk bond market is through the following ETFs:

For more stories on bond ETFs, visit our bond ETF category.

• iBoxx $ Liquid High-Yield (NYSEArca: HYG): up 22.2% year-to-date and has a yield of 9.9%

• PowerShares High Yield Corporate Bond (NYSEArca: PHB): up 18.1% year-to date and has a yield of 9.3%.

• SPDR Barclays Capital High Yield Bond (NYSEArca: JNK): up 31% year-to-date and has a yield of 12.4%

Kevin Grewal contributed to this article.

Neuberger Berman LLC Managing Director Thomas P. O’Reilly sees that individual investors turned to high-yield bonds for “competitive returns with better downside protection” than equities, despite economic uncertainty, writes Douglas Appell for Investment News. Ann H. Benjamin, managing director with Neuberger Berman, says high-yield bonds tend to outperform equities during slow economic growth.

Some market watchers note, however, that a bearish economy will likely lead high yields to underperform investment-grade corporate bonds. (Read about how bonds fare vs. stocks).

Investors could buy individual bonds, but high-yield bond ETFs are an easy, low-cost alternative for diversifying an investment portfolio, remarks John Jagerson for Learning Markets. Potential investors should keep in mind that bonds may lose value when markets dip. Rising interest rates and inflation both affect bonds.

High-yield bonds are classified as below investment-grade, with higher risk of default or non-payment. Junk bonds usually pay 7% to 10% more than yields provided by 10-year Treasury notes.

For more information on high-yield bonds, visit our high-yield bonds category.

• SPDR Barclays Capital High Yield Bond (NYSEArca: JNK): up 31.8% year-to-date; yields 12.4%

• iShares iBoxx $ High Yield Corporate Bd (NYSEArca: HYG): up 23.4% year-to-date; yields 9.78%

• iShares iBoxx $ Investment-Grade Corporate Bond (NYSEArca: LQD): up 7% year-to-date; yields 5.3%

Max Chen contributed to this article.

For full disclosure, Tom Lydon’s clients own LQD.

Standard & Poor’s commented that issuers are favoring the high-yield bond market over the leveraged loan market, with 86% of speculative-grade debt in bonds during the first nine months of the year compared to 45% in the same period last year, reports Tess Stynes for The Wall Street Journal.

Issuers are seeking the less restrictive terms and longer maturities offered in bonds. Though, high-yield debt does come with higher financing costs when companies try to refinance. (To read more about using bond ETFs, go here).

Some analysts fear that a new bubble may be forming on Wall Street as investors chase down returns, and some are warning that the hike in bond prices may roll back if the economy stumbles and investors run back to safer investments, writes Jack Healy for The New York Times. Struggling companies would then be forced to pay higher rates to take on more debt or refinance old bonds. (Read more about protecting yourself from bubbles here).

Longtime analysts and fund managers are amazed by the investor interest in bonds this year. The risk premium of bonds over Treasuries, or “spread,” dropped to 7.5% from more than 16% in the beginning of the year. Bond yields are above their historic averages, however.

• SPDR Barclays Capital High Yield Bond (NYSEArca: JNK): up 28.6% year-to-date ; yield is 12.9%

• iShares iBoxx $ High Yield Corporate Bd (NYSEArca: HYG): up 20.3% year-to-date; yield is 10.5%

For more information on junk bonds, visit our junk bonds category.

Max Chen contributed to this article.

According to Randall W. Forsyth of Barron’s, the rally has been specifically seen in the credit markets, in particular corporate securities as opposed to lower-risk Treasury securities.

One reason that bond ETFs are remaining attractive it because the credit markets are giving investors a better return than the near-zero return earned in money-market and cash accounts.  Additionally, with the ever-growing number of options available, bond ETFs enable investors to make both bearish and bullish plays on the market.

If the economy improves, corporate credit will benefit. If this happens, Treasury yields are apt to rise. Conversely, if the economy falls short of the bulls’ expectations, Treasury yields may fall but corporate spreads could widen and hurt corporate bond returns. Have a strategy in order to protect yourself.

The iShares iBoxx $ Investment Grade Corporate Bond (NYSEArca: LQD) is up 9.3% year-to-date and has a yield of 5.33%.

The SPDR Barclays Capital High Yield Bond Fund (NYSEArca: JNK) is up 31.3% year-to-date with a yield of 12.9%.

Even municipal bonds have seen a nice uptrend.  Take a look at the iShares S&P National Municipal BondETF (NYSEArca: MUB) which is up 8.7% year-to-date with a yield of 3.63%.  Additionally, State Street Global Advisors recently launched the SDPR Standard & Poor’s VRDO Municipal Bond ETF (NYSEArca: VRD),which is designed to provide investors with access to muni variable-rate demand obligations.

For more stories on bond ETFs, visit our bond ETF category.

Kevin Grewal contributed to this article.

For full disclosure, Tom Lydon’s clients own shares of LQD.

Dena Aubin for Reuters explains that risks of continued high defaults and massive refinancing needs of many corporate borrowers are keeping credit spreads high, especially on high-yield bonds. This signals that the economy isn’t exactly in the clear.

Bond prices are still priced for “near recession,” one researcher says. Spreads reflect a default rate of 9%, which the researcher says would put growth in the 0% to 1% range.

High unemployment rates and consumer debt may keep the economy anchored for awhile longer, and economists polled by Reuters last week said the economy is recovering more strongly than previously expected. Next year, however, could be lackluster and risks of a double-dip downturn remain.

Spreads would typically have to reflect a default rate more within the normal range of about 5% to signal an economy growing more than about 1.5 %, according to one analyst.

• SPDR Barclays Capital High Yield Bond (JNK): up 23.5% year-to-date



• iShares iBoxx $ High Yield Corporate Bond (HYG): up 16.1% year-to-date

For more stories about jubk bonds, visit our bond category.

Many ETFs have been trending higher in recent weeks, says Gary Gordon for ETF Expert. The pattern of the funds recovering indicates that while investors are more willing to take on risk than they were a year ago, there is still some fear lingering.

The stimulus package is proving to lead to increasing business access to credit and government-stimulated GDP.

Some of the ETFs that have been on the move by varying degrees in the last month or so include:

• iShares Investment Grade Bond (LQD)
• iShares High Yield Junk (JNK)
• SPDR International Treasury Bond (BWX)
• JP Morgan Emerging Market Bond (EMB)
• iShares S&P Preferred Index (PFF)
• iShares Lehman Treasury 20-Year Treasury Bond (TLT)
• Vanguard Total U.S. Market (VTI)
• Vanguard Developed Europe Pacific (VEA)
• Vanguard MSCI Emerging Markets (VWO)

TLT’s presence on the list is evidence that there’s still some worry hanging around. Treasury debt prices rose on Wednesday, in fact, as investors wondered whether the recovery had staying power, reports  John Parry for Reuters. Investors also don’t seem to be up for taking on much risk via commodities, Gordon points out.

There will still be market pullbacks and corrections as well as profit-taking, but pick your spots. There are several areas that are in uptrends – you just have to look for them. At ETF Trends, we use the 200-day-moving-average to spot market trends and patterns.

For more stories about trend following, visit our trend following category.

Those businesses representing the biggest risk are the ones that are really basking in the glow of July’s rally in the S&P 500.

The winning stocks have been the companies with a rating of BB or lower, also known as “high-yield junk,” explain Jennifer Alban and Rodrigo Campos for Reuters. Shares prices for junk companies are up between 21%-29% as of Aug. 4. By comparison, investment-grade companies with a BBB rating and higher are up 9.5%-19.25% for the same period.

Part of the reason for this rally is that the most beaten-down areas and sectors tend to have the furthest to go in a recovery. Companies with high credit ratings have a tendency to weather challenged markets better, so when a rally takes place, they usually don’t skyrocket.

Some analysts believe that the recent junk rally can’t sustain itself unless higher quality companies join in on the growth sooner rather than later. The higher-rated companies have less growth potential, though, so their earnings prospects may need more time to kick in.

Have a strategy and a stop-loss in place to protect yourself when the trend shows signs of ending.

In the meantime, here are some ways you can get this exposure with ETFs:

• iShares iBoxx $ High Yield Corporate Bond (HYG): up 10.2% year-to-date

• iShares iBoxx $ Investment Grade Corporate Bond (LQD): up 0.7% year-to-date

• SPDR Barclays Capital High Yield Bond (JNK): up 24.7% year-to-date

For full disclosure, Tom Lydon’s clients own shares of LQD.

For more stories about bonds, visit our bond category.

The corporate high-yield bond market has rallied around 30% over the last few months as the economy slowly but surely finds some footing, explains Sasha Gera for Financial Post. The average “junk” company is no longer distressed.

Less risky investment-grade corporate bonds are also finding a measure of appeal. U.S. companies raised $903 billion year-to-date, compared with $548 billion at the same time in 2008.

One risk to be mindful of, however, is the influx of corporate bonds as corporations restructure and renew debt. This could lead to an oversupply that would result in prices stagnating or falling, Gera notes.

Dena Aubon for Reuters reports that U.S. corporate bonds may indeed be poised for a pullback before the year is over, as yields have been cut by one-third.

Be prepared with a strategy before investing in this market and be sure to mind the trendlines. Is it too late or too good to be true? These funds are above their 200-day moving averages, and you can’t fight the trend.

• SPDR Barclays Capital High Yield Bond (JNK) up 23.5% year-to-date

• iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD): up 4.5% year-to-date

• iShares iBoxx $ High Yield Corporate Bond (HYG): up 17.7% year-to-date

For more stories about corporate bonds, visit our corporate bond category.

For full disclosure, Tom Lydon’s clients own shares of LQD.