High-yield, speculative grade, junk bond exchange traded funds hold up against other fixed-income assets in a rising interest rate environment.
The iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) gained 1.4% year-to-date and SPDR Barclays High Yield Bond (NYSEArca: JNK) is up 1.1%. [How to Play the Sweet Spot in High-Yield Bond ETFs]
Most fixed-income assets have been selling off as yields on benchmark 10-year Treasuries rose from its 1.63% low in May to as high as 3.0% earlier this month. Bond prices and yields have an inverse relationship, so rising rates translate to lower prices. [ETFs for a Rising Rate Environment]
However, junk bonds, a riskier asset, are more correlated to the health of the equities market.
“Certain sectors of the bond market react differently to rising rates,” according to Morningstar senior fund analyst Cara Esser. “For example, more-credit-sensitive bonds, like high-yield corporates, tend to react less negatively to rising rates than do bonds with more interest-rate risk, such as a U.S. Treasuries.”
“For those of you who are worried about rising rates, high yield is likely to continue to outperform relative to other fixed income markets in that environment,” Henderson Global Investors fund managers Chris Bullock, said in a Fundweb article.