- Strengthened speculative-grade debt may continue to support junk bond-related ETFs
- If fixed-income market follows historical trends, junk bonds may continue to rally over the next few weeks
- Financials are the best performing sector when junk bond ETFs rise, according to Kensho data
The renewed risk-on environment has helped speculative-grade debt strengthen could continue to support junk bond-related exchange traded funds, along with other market segments that benefit from the improved outlook.
The iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) and the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK), the two largest high-yield corporate bond exchange traded funds by assets, have been among the most popular ETF plays in the recent market rebound, gaining 5% in recent weeks. [Junk Bond ETFs are Hot Again]
According to Kensho data, if the fixed-income market follows historical trends, junk bonds may continue to rally over the next few weeks. Kensho found that after JNK rose 5% or more in two weeks, the fund has pushed 3.3% on average over the following two weeks, reports Deirdre Bosa for CNBC. HYG has also shown a positive correlation, with gains of almost 2.5% on average after the run.
Alternatively, Kensho also discovered that financials are the best performing sector when junk bond ETFs rise, followed by consumer discretionary, industrials and materials.
Over the past two weeks, the Financial Select Sector SPDR (NYSEArca: XLF) rose 3.5%, Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) gained 4.2%, Industrial Select Sector SPDR (NYSEArca: XLI) added 3.4% and Materials Select Sector SPDR (NYSEArca: XLB) increased 5.2%.