The global flow of easy money has forced down yields on everything, pushing investors back into high-yield bond exchange traded funds for extra yields.
High-yield, junk bonds are now the best performing fixed-income assets year-to-date. So far this year, the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) rose 2.7% and iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) gained 2.2%. Both ETFs have largely erased the steep losses in December and are now trading back above their 200-day simple moving average.
Junk bond funds pulled in $2 billion of inflows last week, the fourth consecutive week of positive flows, reports Christopher Whittall for the Wall Street Journal.
Year-to-date, JNK has attracted $1.7 billion in net inflows while HYG added $2.9 billion in new inflows, according to ETF.com data. [ETF Chart of the Day: Return to Junk]
As major central banks implement loose monetary policies and go on a government debt buying spree, investors are forced into riskier fixed-income assets to generate higher yields, reports Cordell Eddings for Bloomberg.
The supply of high-quality debt has been dwindling. Nandini Srivastava, a global-market strategist at JPMorgan, points out that U.S., U.K. and Japan central banks have snatched up as much as a third of the $50 trillion in global bonds over the past eight years while banks have been hoarding highly rated securities to meet regulatory standards.
Now, corporate debt looks especially attractive as European government bond yields fall into negative territory and U.S. Treasuries remain stubbornly low. For instance, JNK shows a 5.77% 30-day SEC yield and HYG has a 5.11% 30-day SEC yield. [High-Yield Europe Bond ETF Options]
“With yields so low, investors are willing to trust the Microsofts and Cokes of the world for the extra basis points,” Edward Marrinan, a macro credit strategist at RBS Securities, said in the Bloomberg article.
J.P. Morgan Chase & Co. argues that money managers could allocate 20% more than benchmark indices to acquire company securities in 2015, compared to 5% over five years ago.
SPDR Barclays High Yield Bond ETF
For more information on speculative-grade debt, visit our junk bonds category.
Max Chen contributed to this article. Tom Lydon’s clients own shares of JNK and HYG.