“Investors are willing to accept increasingly smaller yield premiums to take on
additional risk,” Koesterich said.
The iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) has a 4.62% 30-day SEC yield and the rival SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) has a 4.98% 30-day SEC yield. [Junk Bond ETFs Gain Traction Despite Risk-Off Environment]
The run-up in riskier assets reveals investors’ confidence in the economy as more are betting on improving conditions ahead. However, investors should be wary if growth doesn’t manifest.
“This is not an unreasonable expectation, but if the economic data does not begin to improve, then stocks and other higher-risk assets may become more vulnerable,” Koesterich added.
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Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own QQQ, SPY, HYG and JNK.