Last year, high-yield corporate bond exchange traded funds were controversial ideas. With oil prices tumbling and the Federal Reserve appearing as though it was on course for multiple interest rate hikes in 2016, ETFs such as the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) and the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) fell out of favor with investors.
That situation has reversed in significant fashion this year. Rebounding oil prices and diminishing chances of multiple interest rate hikes are encouraging investors to revisit junk bond ETFs, including HYG and JNK. HYG and JNK are the two largest high-yield corporate bond ETFs by assets.
High-yield, speculative-grade corporate bond exchange traded funds have gotten a lot of flak over perceived liquidity issues, especially if investors experience periods of extreme market stress.
However, junk bond ETFs have proven to be sufficiently liquid as more investors eschew the primary markets for the ETF investment vehicle instead.
“ETFs that track iBoxx indices have seen unprecedented liquidity over the last month, highlighting their growing popularity among market participants,” according to financial information services company Markit.[related_stories]