High-yield bonds in the U.S. are losing 0.14 % this month after posting 12.9 % returns this year through October, according to Bank of America Merrill Lynch index data, reports Bloomberg BusinessWeek. [Dividend, REIT and High Yield ETFs for Income]
“The ease with which investors can enter and exit ETF investments creates new and risky dynamics in the speculative-grade market with the potential flow of ‘hot money.’ Speculative-grade companies have a higher default risk than investment-grade companies. Therefore, when the credit cycle turns against investors, losses from defaults can quickly outstrip the additional interest payments that high-yield investors receive,” S&P credit analysts said in a Bloomberg BusinessWeek report.
PowerShares Fundamental High Yield Corporate Bond ETF
Full disclosure: Tom Lydon’s clients own HYG and JNK.
Tisha Guerrero contributed to this article.