With mounting uncertainty over speculative-grade debt markets, Direxion Investments has expanded its line of inverse and leveraged exchange traded funds to include a high-yield, junk bond option.
The recently launched Direxion Daily High Yield Bear 2X Shares (NYSEArca: HYDD) tries to reflect the daily performance of -2x or -200% performance of the Barclays U.S. High Yield Very Liquid Index. HYDD comes with a 0.80% expense ratio.
“While high yield bonds have been embraced by those looking for yield and higher returns, traders and investors are now preparing for potential pullbacks due to the uncertain U.S. interest rate climate and the corresponding impact on high yield markets,” Sylvia Jablonski, Managing Director at Direxion, said in a statement. “But, it can be expensive to change the asset and security allocation of portfolios. Our High Yield Bear Leveraged Fund is a simple and cost-effective hedge for tactical managers who want to capitalize on these changing markets.”
Related: Wall Street Eyes Junk Bond ETF for Easy Liquidity
Along with interest rate risks, the high-yield bond market also faces rising credit risks as the volume of U.S. companies defaulting on their riskiest debt is rising into the second half of 2016, with depressed metals and crude oil prices weighing on producers.
According to Fitch Ratings, the trailing 12-month U.S. high-yield bond default rate rose to 4.7% in mid June, compared to 3.8% at the end of April, and is closing in on the 6% rate anticipated by year end, reports Rachel Koning Beals for MarketWatch.
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