Some investors may still be skittish about high-yield bond ETFs after the funds faced intense scrutiny for increased volatility and wide separations from net asset value during the May/June sell-off. Citi said the volatility of premiums and discounts in junk bond ETFs during times of stressed selling is attributable to “a combination of stale marks in the underlying holdings and arbitrage activity by authorized participants.”
Still, Citi views junk bond ETFs such as HYG and JNK as “structurally sound.” The bank said these funds operated as expected during a tumultuous period, trading continuously while providing liquid exposure to the high-yield bond market. Investors seem to agree as HYG and JNK currently trade an average of just 1.7% below their 52-week highs.
iShares iBoxx $ High Yield Corporate Bond ETF
ETF Trends editorial team contributed to this article. Tom Lydon’s clients own shares of HYG and JNK.