Institutional investors are increasingly turning to fixed income ETFs to express fundamental views while coping with low interest rates and the potential for increased bond market volatility. Overall, 59% of fixed-income ETF users reported that they have increased ETF usage since 2011,” according to the study.
Junk bond ETFs have recently been under pressure due to sliding oil prices and lingering concerns that the Federal Reserve is closing to raising interest rates. Moody’s Covenant Quality Index, which measures the strength of legal protection in junk bonds, dipped in June to its weakest level since the index was created in 2011. With the Federal Reserve set to hike interest rates, junk bonds could also come under pressure. [Junk Bond ETF Risks]
Some investors may no longer be willing to tap into the attractive yield opportunities in the high-yield bond market against a backdrop of growing risks, especially with concerns over energy and commodities ahead of a Federal Reserve interest rate hike.
iShares iBoxx $ High Yield Corporate Bond ETF
Tom Lydon’s clients own shares of HYG and JNK.