“We’re not quite at the midway point of the year, and the default volume has accelerated, evidenced by the nearly $28 billion recorded in April and May,” Eric Rosenthal, senior director of leveraged finance at Fitch Ratings, told MarketWatch. “Even though many of the large players in commodity price-dependent sectors have already succumbed to default, there are still a few big ones that could shake up the rate later this year.”
Fitch has warned that the large majority of defaults will come from the energy and metals/mining sectors, or a little over 4% of the anticipated 6% default rate.
More aggressive bond traders seeking to hedge against these risks or capitalize off short-term moves can utilize HYDD to trade a turn in the junk bond market.
Related: iShares Rolls Out Fallen Angel, Ex-Energy Bond ETFs
HYDD’s underlying index sector allocations include telecom 21.3%, non-cyclical consumer 17.6%, energy 13.8%, cyclical consumer 13.8%, financial 8.7%, industrials 7.7%, basic materials 6.7%, tech 6.0% and utilities 3.2%.
HYDD will be competing with the ProShares Short High Yield ETF (NYSEArca: SJB), which takes the inverse -1x or -100% daily performance of the Markit iBoxx $ Liquid High Yield Index.
For more information on new fund products, visit our new ETFs category.