It’s no surprise investors are stretching for income with the 10-year Treasury note yielding a paltry 1.8%. Rock-bottom interest rates have punished savers. For example, the average five-year CD yield stood at 1.05% on August 9, according to Bankrate.com. The average money market account yield was 0.12%. [Short-Duration Treasury ETF Sees Outflows as Fees Top Yield]
However, there are concerns investors could end up getting burned. Junk bond ETFs have higher yields because investors are taking on more credit risk.
“This is not a sustainable state of affairs,” Bank of America analysts said in a recent note. “While the bid for high-quality yield is understandable in this environment, we question the extension of this reach into the economically and risk appetite-sensitive portions of the credit spectrum.”
“This could pave the way for some heartbreak down the road,” Les Levi, a managing director at North Sea Partners, told DealBook.
SPDR Barclays High Yield
Full disclosure: Tom Lydon’s clients own HYG and JNK.