Now that volatility is dissipating and risk is back on, investors are piling back onto junk bond exchange traded funds.
According to Bloomberg, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) and the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) recently garnered their largest daily inflows this week on record.
Specifically, investors funneled $450 million into HYG on July 13, the most daily inflows ever in the fund’s history, followed by $309 million the next day. Additionally, investors dumped $190 million into JNK on July 13, followed by $410 million the next day. [Junk Bond ETFs Quench Traders’ Thirst for Liquidity]
Over the past week, HYG has attracted $998.5 million in net inflows while JNK brought in $562.7 million, according to ETF.com.
Meanwhile, HYG was only up 0.3% and JNK was 0.2% higher over the past week.
A number of factors may be contributing the greater risk-on mentality. For instance, a Greek bailout plan is back on the table, Chinese markets have rebounded off the bearish turn and oil is stabilizing. Additionally, the U.S. economy is still slowly expanding, and investors may be shrugging off the potential negative effects of a rising rate environment.
“Risks from China and a collapse in oil prices have trumped the Fed moving off the lower bound” as “the largest area of concern,” Bank of America analysts said.
Goldman Sachs Group Inc. analysts led by Charles P. Himmelberg, though, argue that the rebounding interest in junk bonds may be more technical in nature.
“If you ask me my best explanation, I’d bet it’s more technical,” Himmelberg told Bloomberg. “I bet there are enough fund managers who use it as a tool to make sure they’re tracking their benchmarks.”
The recent interest comes off a steep $4 billion in outflows from high-yield bond ETFs from mid-May through the end of June. Goldman Sachs pointed out that five of the largest outflows on record in junk bond ETFs occured over the past year.
For more information on the speculative-grade debt market, visit our junk bonds category.
Max Chen contributed to this article.