After the large sell-off in speculative-grade debt last week, some believe the exodus out of junk bonds and related exchange traded funds may have been overdone.
The upheaval in government bonds finally triggered $2.6 billion in outflows out of junk bond investments in the seven days ended Jun 10, the largest weekly outflow since mid-December, Financial Times reports.
The SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) saw $940.5 million in outflows while iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) experienced $571.7 in outflows. [Fixed-Income Investors Grow Wary of Junk Bond ETFs]
However, assets managers now view the recent sell-off as a buying opportunity for bonds that have some of the highest yields.
“We’re all nervous that retail investors will panic, but we view this as a buying opportunity, as it was after the taper tantrum,” Gershon Distenfeld, head of high yield at AllianceBernstein, said in the FT article.
Nicholas Gartside, the chief investment officer for international fixed income at JPMorgan Asset Management, said that the group was planning to buy US junk bonds after yields ran higher.
For instance, JNK now shows a 5.71% 30-day SEC yield after falling 1.0% over the past month, and HYG has a 5.20% 30-day SEC yield after dipping 0.9% over the past month.
“What we have seen so far is a consolidation, not a reversal,” Gartside said in the article. “The market is much better prepared [for a US interest rate rise this year]than it was before the taper tantrum — both from a positioning and valuation perspective.”
Back in 2013 when the Federal Reserve first hinted at tapering its quantitative easing program, the yield on the BAML junk bond index surged to 6.9% and then settled after fixed-income investors came pouring back into the asset class.
Despite the risk of rising interest rates, there is high demand for higher yielding assets among investors, including insurance companies and pension funds that are trying to bolster returns to meet liabilities.
SPDR Barclays High Yield Bond ETF
For more information on speculative-grade debt, visit our junk bonds category.
Max Chen contributed to this article.