Over the past month, investors scaled back on risk and shifted money into safe havens like U.S. Treasuries. Consequently, high-yield bond exchange traded funds (ETFs) have suffered a dramatic sell-off. But there’s optimism that high-yield bond ETFs will benefit from today’s economic environment.

Doug Forsyth of Allianz Global Investors Capital believes that “the stronger-than-expected economic recovery, a firmer earnings environment and historically low interest rates puts U.S. high-yield bonds in a sweet spot,” reports Katrina Nicholas of Business Week. [Tom Talks High-Yield on CNBC.]

More specifically, Forsyth predicts that companies rated between B and BB will appreciate the most over the coming year. He cites that companies with such ratings had an average of 30%  year-over-year increase in cash flow for the first quarter. [2010: The Year of Junk Bond ETFs?]

Further, according to a National Association for Business Economics survey of economists, the U.S. economy is estimated to grow 3.2% annually through 2011. That is higher than earlier estimates. [The Impact of Higher Rates on Bond ETFs.]

Junk bonds have returned 7.2% so far this year, according to the Bank of America Merrill Lynch High Yield Master II Index. [7 Ways to Choose Bond ETFs.]

For more stories on junk bonds, visit our junk bond category.

  • iShares iBoxx $ High Yield Corporate Bond (NYSEArca: HYG)


  • SPDR Barclays Capital High-Yield Bond (NYSEArca: JNK)

  • PowerShares High-Yield Corporate Bond (NYSEArca: PHB)

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

Sumin Kim contributed to this article.

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.