Currently, JNK and HYG are trading very close to indicative value, so they aren’t exhibiting premiums or discounts. But that hasn’t been the case at times when the high-yield bond market is unsettled or volatile. [Sell-Off Pushes Junk Bond ETFs to Discounts]
When ETFs sell at premiums, investors should move cautiously, Paul Amery, editor of IndexUniverse.eu, told TheStreet. “You should only buy at a premium if you think that the market is going to continue to rise,” he said.
“In the past, disruptions in the bond markets have caused this fund to experience significant swings in the premium and discounts to its net asset value,” investment researcher Morningstar says in analyst reports on JNK and HYG. “While we believe that the problems actually lie in the markets of the underlying securities, investors should be aware of the premium or discount to NAV before purchasing this fund and be prepared to handle the gyrations.”
iShares iBoxx High Yield Corporate Bond Fund
Full disclosure: Tom Lydon’s clients own HYG and JNK.