Junk bond ETFs, which hold about 10% to 15% in energy-related debt, pulled back late last year after the plunge in oil prices raised credit concerns on some of the riskier loans from the nascent U.S. shale oil industry. [Energy Rebound Lifts Junk Bond ETFs]
Over the near-term, Morningstar also anticipates corporate bonds to outperform Treasuries, arguing that as the European Central Bank undergoes its quantitative easing program, the proceeds will likely be reinvested in the corporate debt markets. Consequently, the demand should help keep credit spreads from widening and could cause credit spreads to tighten even more against Treasuries, Sekera added.
The iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) has declined 2.0% over the past month after yields on 10-year Treasuries rose about 30 basis points from its mid-April low. IEF gained 0.9% year-to-date.
For more information on the speculative-grade debt market, visit our junk bonds category.
Max Chen contributed to this article.