High-Yield Bond ETFs in Huge Rally as Recession Fears Abate | ETF Trends

Exchange traded funds that invest in high-yield corporate bonds have soared in October on signs the economy won’t slip into another recession as investors pile back into riskier assets.

The rally has also been fueled by relief that European leaders have put together an agreement on Greek bond haircuts and beefing up the bailout fund.

Investors flocked into the safety of U.S. Treasuries this summer amid the sell-off in equities and fears Europe’s debt crisis would explode. [High-Yield ETFs Fall to 52-Week Low]

Treasury yields fell and the spread between yields on government and corporate bonds widened. Now, however, corporate bond investors are pushing down relative yields at the fastest rate in over two years, Bloomberg reported.

The move has lit a fire under ETFs that invest in corporate debt, particularly those that track high-yield bonds or “junk.”

According to the Bespoke Investment Group, the iShares iBoxx $ Investment Grade Corporate Bond (NYSEArca: LQD) has broken out to new a new multi-year high and is up about 16% since Oct. 4. [What are ETFs? — Diversified Bond Funds]

Meanwhile, the iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) has also seen a big rally this month. The junk-bond ETF closed Thursday at $90.49 a share, up from its intraday low of $77.90 hit in early October. The fund has a 12-month yield of 8.33%. The ETF competes with SPDR Barclays High Yield Bond (NYSEArca: JNK). [Dividend ETFs Without the Label]

The rally in corporate bonds, especially in high-yield junk bonds, highlights the market’s more bullish stance on the economy as traders begin to move to riskier assets.