Falling Oil Prices Renew High-Yield, Junk Bond ETF Concerns

Speculative-grade, junk bond exchange traded funds are beginning to slip as plunging oil prices renew default concerns for highly leveraged, high cost crude oil producers.

Over the past week, 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, both fell almost 1% as West Texas Intermediate crude oil futures dipped back into a bear market.

“Earlier optimism regarding the long anticipated rebalancing of the market has been tempered by persistently high inventories and renewed worries about the pace of demand growth against a backdrop of lowered global growth forecasts,” David Joy, chief market strategist at Ameriprise, told the Financial Times.

SEE MORE: Monitoring Junk Bond ETF Technicals

While high-yield bonds have recovered for much of this year after yield-hungry investors eased back into riskier areas of the debt market in response to aggressive stimulus measures from global central banks, analysts remain concerned that weakness in the oil market could trigger failures in the energy industry.