“In general, high yield bonds with short maturities – under five years – can have some advantages over those with longer maturities,” PIMCO portfolio manager Vineer Bhansali wrote in a recent commentary on HYS.
“Shorter maturity bonds have lower spread duration, or sensitivity to spread movements, so they are more defensive in a world where we think equities and credit can be fairly volatile,” he said. “We chose to track an index that invests in bonds with maturities of zero to five years, rather than one to five years, because it allows us to hold bonds until maturity rather than having to sell them at the one-year point. This potentially lowers transaction costs and volatility.”
The PIMCO ETF also uses a credit screen that excludes illiquid bonds and “red light” credits from issuers whose viability as a going concern is in serious question.
PIMCO 0-5 Year High Yield Corporate Bond Index Fund
Full disclosure: Tom Lydon’s clients own HYG and JNK.