After a wild July that saw investors, primarily of the retail variety, flee high-yield bond exchange traded funds, junk is back in style with week ending Aug. 20 representing the best week of inflows to junk bond ETFs this year.
High-yield mutual funds and ETFs raked in $2.2 billion for the week ending Aug. 20, the second consecutive week of inflows after investors yanked $7.1 billion from such funds in the five days ending Aug. 6 and $12.6 billion over the prior four-week period, report Sridhar Natarajan and Christine Idzelis for Bloomberg, citing Lipper data.
Over the past five trading sessions, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) and the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK), the two largest U.S. junk bond ETFs by assets, have added over $591 million in new assets. [Institutional Investors Return to Junk Bond ETFs]
The actively managed AdvisorShares Peritus High Yield ETF (NYSEArca: HYLD) has added almost $31.6 million.
The yield on Bank of America Merrill Lynch’s U.S. High Yield index, a benchmark covering a U.S. junk bonds, rose to 5.94% on August 1 from 4.85% on June 24 as investors dumped junk debt. However, increased demand “has pushed average yields down 40 basis points to 3.9 percent from a six-month high of 4.3 percent on Aug. 8,” according to Bloomberg.
HYG and JNK have 30-day SEC yields of 4.79% and 5.22%, respectively, compared to a 2.41% yield on 10-year U.S. Treasuries.
U.S. interest rates have been low for several years, which has increasingly stoked speculation of a high-yield bond ETF bubble with naysayers alleging that too many yield-chasing investors have piled into junk bond funds, including HYG and JNK.
While it is true that with $12.6 billion and $9.4 billion in assets under management, respectively, neither HYG nor JNK can be considered “small,” that combined $22 billion pales in comparison to the amount of cash Americans have socked away in low-yielding assets.
Data “show the American people have $10.8 trillion parked in cash, bank accounts and money-market funds that pay little or no interest. At the end of the first quarter, low-yielding assets totaled 84.5% of annual disposable personal income, the highest share in 23 years,” reports Rex Nutting for MarketWatch.
iShares iBoxx $ High Yield Corporate Bond ETF
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of HYG, JNK, and HYLD.