The risk-off-induced selling tripped up junk bonds in the fixed-income space, but now, high-yield debt exchange traded funds are attracting some bottom fishers.
Since the early Wednesday low, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) gained 1.7% and the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) increased 1.4%. Over the past three months, HYG has declined 2.7% while JNK decreased 3.5%.
Speculative-grade corporate debt were sold off along with the broader equities market over the past week as global growth concerns weigh on investor confidence. Consequently, junk bond yields rose 25 basis points to a one-year high of 6.64%, reports Matt Robinson for Bloomberg.
In comparison, the benchmark 10-year Treasury yield plunged below 2% Tuesday. [Skittish Investors Turn to Safe-Haven Government Bonds, ETFs]
Consequently, Mark Kiesel, chief investment officer of global credit at Pacific Investment Management Co., argues that riskier debt now looks attractive.
“Credit is a buy here, specifically high yield and bank loans,” Kiesel said on Bloomberg. “You can buy the highest quality high-yield segment today at 5 to 5.5 percent. That’s long-term value in a market of 2 percent Treasuries.”
HYG has a 5.16% 30-day SEC yield and JNK shows a 5.89% 30-day SEC yield.
Patrick Maldari, senior fixed-income investment specialist at Aberdeen Asset Management, also said his firm was converting its cash piles into junk bonds.
“We’re putting money to work,” Maldari said in a Wall Street Journal article. “We think the trajectory for credit is still pretty good.”
Specifically, the outlook on defaults remains low unless the economy slows down. Moody’s Investors Service has pointed out that default rates remain low, with 1.85% of U.S. junk-rated companies defaulting in the year ended Aug. 31, compared to 14.1% at the end of 2009. [Investors Eye Cheap Junk Bond ETFs]
iShares iBoxx $ High Yield Corporate Bond ETF
For more information on high-yield debt corporate debt, visit our high-yield bonds category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of HYG and JNK.