A nearly $800 million trade in SPDR Barclays Capital High Yield Bond (NYSEArca: JNK) has been one of the biggest stories in the ETF business this month. [Will More Big Investors Use ETFs to Disguise Trades?]
JNK reported net outflows of $452 million in the latest week following the prior week’s $871 million net outflow, according to the Reuters article.
“When a large institutional investor took $800 million or so out of a popular junk bond ETF, that may have spooked the retail crowd or tipped off other institutional investors,” said Jeff Tjornehoj, head of Americas Research at Lipper, in the report.
“This in-kind redemption occurred in the data prior to this latest week. However, we are feeling the knock on effect now,” he said.
“Expanded use of high-yield ETFs as a short-term trading platform will likely fuel more market volatility, particularly in periods of macro stress, when risk re-allocation could drive big swings in ETF flows. In periods of asset inflows such as the first quarter, this should support tighter spreads on new issues, particularly for large leveraged issuers whose bonds must be acquired by ETFs,” Fitch said in a separate report.
“At the same time, forced selling could be exacerbated by hot money flows during periods when fundamentals are weakening and investors are pulling back from riskier asset classes,” Fitch added. “This has the potential to reinforce liquidity-driven price moves in high-yield bonds that may have little or no relation to changes in credit fundamentals.”
SPDR Barclays Capital High Yield Bond
