The shift to income-oriented strategies over the past couple of years has pushed down yields and helped junk bonds rally.
“When we think about high-yield in general, we think high-yield is a little bit of a bubble, but most of that bubble is really on the CCC credits and the B credits, where spreads are well inside of history,” Giroux added. “We think the highest-quality BBs look attractive relative to equities and relative to the fixed-income market in general.”
In comparison, the more popular junk bond ETFs, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) and SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) include bonds with lower credit quality. HYG credit quality allocations include: BB 46.%, B 26.44% and below B 10.5%. JNK includes BB 38.8%, B 41.6% and CCC or lower 19.1%.
However, the tilt toward riskier debt provides higher yields. HYG has a 4.47% 30-day SEC yield and JNK has a 4.80% 30-day SEC yield.
For more information on speculative-grade debt, visit our junk bonds category.
Max Chen contributed to this article.