LQD, the investment-grade bond fund, is trading near an all-time high.
Yield-hungry investors have also piled into junk bond ETFs such as iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) and SPDR Barclays High Yield Bond (NYSEArca: JNK) this year. These funds are breaking out to their highest levels since the credit crunch. [High-Yield ETF Breakout Holds Key for Stocks]
HYG and JNK have pulled in flows of $4.9 billion and $3 billion year to date, respectively, according to IndexUniverse data. The speculative-grade debt they hold has lower credit quality than the bonds in LQD.
BlackRock and other asset managers are looking for ways to reduce their exposure to U.S. corporate bonds, WSJ reports.
“Fixed-income is becoming an asset class with more risk to it, and I think people underestimate that,” said Rick Rieder, BlackRock’s chief investment officer of fundamental fixed income, in the article. “It would take very little in the way of a rate increase for investors to lose their total returns across many traditional fixed income sectors.”
iShares iBoxx $ Investment Grade Corporate Bond
Full disclosure: Tom Lydon’s clients own LQD, HYG, JNK and TLT.
