Speculative-grade, high-yield bond exchange traded funds are finally feeling the pressure of the global bond sell-off, and investors are pulling out of junk ETFs in droves.
Junk bond ETFs remained relatively unchanged through late April and May while the Treasuries and investment-grade debt markets sold off. However, over the past week, the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) declined 1.2% and iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) fell 1.4%. Both JNK and HYG briefly tested their support at the 200-day simple moving average on Tuesday as well.
Additionally, while the speculative-grade debt market was selling off over the past week, investors pulled $571.7 million from JNK and redeemed $940.5 million from HYG.
The recent reversal in sentiment suggests that the Federal Reserve interest rate hike fears are finally taking hold among junk bond investors.
“Price action was miserable across risk assets yesterday,” Peter Tchir, head of macro credit strategy at Brean Capital LLC, said in a Bloomberg article. “It was the first time since yields shot higher that credit markets felt weak.”
The high-yield bonds market remained relatively stable through May. According to Bank of America Merrill Lynch, global junk notes gained 0.4%, whereas German government bonds led the world’s bond market don 0.5%.
Moreover, while global bonds dipped 0.6% in April, junk bonds returned 1.6%.