Investors looking for clues as to if and when the Federal Reserve will raise interest rates, might want to pay added attention to high-yield corporate bond exchange traded funds, including the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) and the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK).
Yields have been rising after months of selling pressure ahead of speculated Federal Reserve interest rate hike. More observers, though, anticipate the Fed to push off on a rate hike due to ongoing global economic troubles.
Junk bond sales are down 9% in 2015 year-over-year. Meanwhile, investors have yanked $14.3 billion from junk-related mutual funds and ETFs since the middle of April, according to Lipper data, which have subsequently pushed up yields on the riskiest rated companies to 14%, according to Bank of America Merrill Lynch.
Most of the weakness in the speculative-grade market has been focused on commodity-related issuers, notably energy, metals and mining companies. The sub-sectors also make up a good chunk of the junk bond-related ETFs. For instance, HYG includes 12.7% energy and 7.3% capital goods exposure.
However, HYG and JNK, the two largest junk bond ETFs trading in the U.S., have been stout performers this month as investors have been pouring billions into the funds. HYG and JNK are two of top ETFs in terms of new assets added since the start of the current quarter.
“Exchange-traded funds that track high-yield bond indexes have been the beneficiaries of a cash surge in recent weeks as market participants figure the central bank probably won’t raise rates in 2015, and it could be well into 2016 before anything happens,” reports CNBC.