The three largest ETFs that invest in corporate debt have gathered nearly $15 billion this year even though ratings agencies are downgrading the bonds at the fastest rate since the financial crisis.
Among the 10 best-selling ETFs in 2012, two funds on the list track corporate bonds: iShares iBoxx Investment Grade Corporate Bond (NYSEArca: LQD) and iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG).
LQD has seen year-to-date net inflows of $6.9 billion while HYG has brought in $4.5 billion, according to IndexUniverse data. Meanwhile, SPDR Barclays High Yield Bond (NYSEArca: JNK) has hauled in $3.1 billion. [Investment-Grade Bonds May Cool After ETF Hauls in $7 Billion]
Corporate defaults rose this year from 2011 while a slowing global economy and record borrowing are eroding credit quality, Bloomberg News reports. Speculative-grade or “junk” debt is seeing the most downgrade pressure.
Companies around the world have issued nearly $4 trillion of debt this year to lock in yields that are hovering a bit above 3%, according to the article. The demand for corporate debt has pushed bond prices higher and yields to extremely low levels.
In high-yield bonds, trading in ETFs following the sector is rising at a faster rate than transactions in the underlying junk debt.