Finding Treasure in Junk Bond ETFs | ETF Trends

After the junk bond exchange traded fund (ETF) market dipped briefly over the last month, it’s now come roaring back.

There’s more than just one thing goading this rally:

Falling Defaults. Moody’s stated that global junk-grade default rates hit a two-year low of 3.3% in November, and the rate may fall to 2.9% by year-end and 1.8% by November 2011 as corporate earnings surge and the economic recovery continues apace, reports Bryan Keogh for Bloomberg. [Risk Easing in Corporate Bond ETFs.]

Greater Confidence. Gwen Robinson for The Financial Times says another reason the junk bond market is reviving as a result of increased confidence that Europe’s debt problems won’t affect the global economy, growing retail sales and an improved rate of home purchases.

The Hunt for Yield. Long-term Treasuries only recently moved above 3%, while short-term debt is still below a paltry 1%. Junk bonds are one area investors can reliably go these days for the yields they’re looking for.

It’s a nice turnaround from last month, when investors pulled $296.3 million from junk bond ETFs.