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Investors have funneled over $2 billion into mutual funds and ETFs that track junk bonds over the last week of September, the largest deposit since mid-July, according to Lipper data. The rising demand was seen as a result of the Bank of Japan’s decision to keep yields near zero and the Federal Reserve’s lower expectation of rate hikes next year.
“The risk-reward is getting skewed,” Peter Tchir, head of macro strategy at Brean Capital LLC, told Bloomberg. “It’s a sign markets are not assigning enough risk to those high-yield bonds.”
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Alternatively, investors may also consider inverse or short junk bond ETFs to hedge a dip in speculative-grade debt markets. 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. Additionally, the ProShares Short High Yield ETF (NYSEArca: SJB) takes the inverse -1x or -100% daily performance of the Markit iBoxx $ Liquid High Yield Index.
For more information on the fixed-income market, visit our bond ETFs category.