It was just two months ago that ETFs such as the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) and the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) were thrown out with the bathwater amid Federal Reserve tapering and a sudden spike in interest rates.
From the FOMC announcement on May 22 through June 24, HYG and JNK lost a combined $2.7 billion in assets, according to Citigroup research. In the midst of what turned out to be panic selling, questions arose about liquidity in the high-yield corporate debt market and the ability of ETFs to function as intended during times of elevated market stress. [Junk Bond ETFs Thriving Again]
With the May/June slide behind them, junk bond ETFs are once again drawing interest from investors and the inflows data supports that assertion. Since the start of July, HYG has hauled in $1.1 billion in investments this month while JNK has raked in nearly $325 million, according Index Universe data.
The SPDR Barclays Short Term High Yield Bond ETF (NYSEArca: SJNK), which has been embraced by investors due in large part to a modified adjusted duration of just 2.19 years, has pulled in almost $320 million this month. [Investors Jumping Back Into Junk Bond ETFs]
It is not just inflows that highlight investors’ renewed confidence in high-yield bond ETFs; it is price action as well. From its May peak around $96.30 to its June bottom, HYG lost 7.5%, but the ETF closed at $93.74 on Tuesday. JNK’s May peak to June trough decline equaled about $3.25 of which $2 has since been reclaimed. SJNK currently resides just 40 cents below its May high.
Bottom line: Junk bond ETFs may have been down in after the May 22 FOMC news, but they are no longer out.