Speculative-grade debt and junk bond-related exchange traded funds have made a quick turnabout as crude oil prices oscillate from a bear to bull market in less than a month.
In seven months last year, U.S. energy junk bonds lost $56.7 billion in market value, with average yields shooting up to as high as 21%, as crude oil prices plunged, reports Lisa Abramowicz for Bloomberg.
The junk bond market, though, recovered as oil prices bounced from their February lows, with energy junk debt gaining almost 40% or about $53 billion of market value from March through July.
More recently, as crude oil prices rebounded from a bear market at the start of the month, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) gained 2.5% and the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK) increased 2.6%, largely shaking off any perceived credit risks in the energy sector as oil prices plunged.
The junk bond ETFs include significant exposure to the highly energy group. For instance, HYG has a 13.0% tilt toward the energy sector.