For example, Moody’s said the big JNK trade resulted in the ETF trading at a discount after it had traded at a premium for months.
Ross in the Financial Times story said this can be explained by market conditions and fund flows.
“JNK had tended to trade at a premium in the early months of 2012 when inflows were high in a period of strong risk appetite. That premium has shrunk more recently amid weaker risk appetite and the ETF has been trading closer to its ask price,” according to the FT report.
Investors seeking extra yield have pumped billions of dollars into junk bond ETFs this year.
However, high-yield mutual funds and ETFs recorded net outflows of about $2.5 billion for the week ended May 23. The week saw the fourth-largest outflow from junk bond funds since 1992. [Are High-Yield ETF Flows Reversing After Buying Spree?]
‘Liquid alternative’
Other junk bond ETFs include iShares iBoxx High Yield Fund (NYSEArca: HYG), PowerShares High Yield Corporate (NYSEArca: PHB) and PIMCO 0-5 Year High Yield Corporate Bond (NYSEArca: HYS). [High-Yield Bond ETFs]
Matt Tucker, head of the iShares fixed-income strategy team, said the controversial trading in high-yield ETFs has been misunderstood by some market participants.
“Large investors wanted to own a diversified portfolio of high yield bonds, so they bought up shares of a high yield ETF on the exchange, and then redeemed the shares of the ETF for the underlying bonds. This is exactly what HYG and our other high yield iShares ETFs are designed to do – provide a liquid alternative to the over-the-counter bond market,” he said in a blog post.
SPDR Barclays Capital High Yield Bond ETF
