Still, data suggest HYG and JNK are bolstering liquidity in the high-yield market.
“A comparison of the aforementioned primary market asset flows with secondary market trading volumes can help highlight this point. For example, in May and June of this year iShares’ HYG traded more than $28.6 billion, with an average daily dollar volume of about $625 million. SPDR’s JNK traded a total of $14.3 billion over the same two-month period, with an average daily dollar volume of about $335 million. While all bets are off in a chaos scenario, it’s clear that until now, HYG and JNK have provided the high-yield market with an added liquidity buffer as well as transparent pricing,” adds Morningstar.
Bond index-based ETFs passively reflect the performance of the underlying market and track a portfolio of individual debt securities. Consequently, liquidity concerns are largely based on the overall liquidity in the underlying or primary markets.
Despite recent concerns over the fixed-income market, speculative-grade bonds are in a better position. The prolonged near-zero interest rate environment has allowed many junk-rated borrowers to sell more bonds at a cheaper financing cost and push out their borrowing, reports Sridhar Natarajan for Bloomberg.
Looking at the amount of debt companies have to payback or refinance in coming years, the five-year so-called maturity wall has been extended by three years. Consequently, now 64% of debt outstanding will start to mature from 2019 to 2023. [Junk Bond ETFs can Endure Calamity]
Tom Lydon’s clients own shares of HYG and JNK.