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.