This week’s Federal Reserve meeting came and went without an interest rate hike, but that is not ebbing the flow of redemptions from fixed income exchange traded funds.
Investors “pulled $1.44 billion out of fixed-income funds since May 31, on course for the biggest monthly withdrawal since September,” report Wes Goodman and Eshe Nelson for Bloomberg.
Ten-year Treasury yields are lower by about 3% Friday, but have surged 18.1% over the past 90 days and 8.4% since May 31. Over that period, four of the 10 worst ETFs in terms of lost assets are bond funds but only one of top 10 asset-gathering ETFs – the Vanguard Total Bond Market ETF (NYSEArca: BND) – is a fixed income fund.
High-yield bond ETFs have been hit particularly hard by outflows as the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) and the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) have lost over $2.7 billion combined since May 31, making the pair the two worst ETFs in terms of lost assets over that time.
Some market observers attributed the recently solid showings by junk bonds to the rebound in oil prices, which helped support energy bonds that plunged in late 2014 in response to the falling crude oil prices.
Junk bonds also tend to have shorter maturities and a much higher yield over benchmarks than higher-rated bonds, which can help cushion investors from the negative effects of rising rates and higher inflation. For instance, JNK has a 4.38 year duration and a 5.61% 30-day SEC yield, and HYG shows a 4.13 year duration and a 5.14% 30-day SEC yield. [Hedged Bond ETFs to Diminish Rate Risk]