Tightening spreads between junk bonds and U.S. Treasurys have helped the former reclaim some of the ground lost in May and June. Wide spreads between high-yield bonds and U.S. government debt can be a signal that investors are concerned about credit risk. Narrowing spreads indicate investors believe the issuers of high-yield are faring better in an improving economy and default risk is diminishing.
With the benefit of hindsight, it can be argued that the May/June slide for high-yield bond ETFs was a buying opportunity. Earlier this month, BlackRock, the world’s largest asset manager, upgraded its view on junk bonds to overweight from neutral. Guggenheim and Nuveen also sounded bullish tones on high-yield corporate debt, reports Ben Eisen for MarketWatch.
SPDR Barclays High Yield Bond ETF
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of HYG and JNK.