Some analysts are worried high-yield ETFs are helping to foster a bubble in speculative-grade corporate debt with strong demand pushing yields to record lows. [‘Hot Money’ Drives Junk Bond ETF Yields to ‘Surreal’ Lows]
Meanwhile, fears over an earnings slowdown and possible recession in the wake of the presidential election could be hurting high-yield ETFs after their strong rally.
“Just as the stock market rally suddenly is looking tired and vulnerable, the surge in prices for riskier corporate debt appears to have run its course. The space is probably a victim of its success as much as it is endangered by an uncertain time ahead, analysts say,” reports Jeff Cox at CNBC.com.
However, the alternatives in bond ETFs aren’t very attractive with 10-year Treasury notes yielding a paltry 1.6%.
“There’s been a lot of verbiage from various big gurus saying high yield is overvalued, don’t touch it with a 10-foot pole,” said Marilyn Cohen at Envision Capital Management in the CNBC story. “My counter to that is, ‘All right, so you’re going to sit in cash or T-bills or corporate bonds, which are trading at lower yields than Treasurys.'”
iShares iBoxx High Yield Corporate Bond
Full disclosure: Tom Lydon’s clients own HYG and JNK.