With all the summer market turmoil, an exchange traded fund (ETF) tied to high-yield corporate debt is showing signs of life. iShares iBoxx $ High Yield Corporate Bond Fund (HYG) previously felt the blows from rising defaults in the subprime mortgage industry that sent bond investors running. John Spence for MarketWatch reports that bond investors went toward U.S. Treasuries and other top quality holdings, leaving behind the broader, bond fixed-income market. The high-yield bond ETF, HYG, recovered in August, and during the four weeks that ended Sept. 6, it gained 5.6%, reports Morningstar. Currently, HYG is up 5.0% for the month.
This April-born ETF has benefited from its liquidity focus. The index that it tracks comprises 50 of the most liquid and tradeable U.S. high-yield corporate bonds. The bond markets have stabilized enough to allow the liquid, high-yield securities to perform better than the general market.
High-yield is a nicer way to say "junk," and corporate junk bonds have higher yields than more highly rated debt to compensate investors for the risk of default. HYG is geared more toward those investors with a higher risk tolerance.
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.