President-elect Donald Trump may enact looser regulatory restrictions and corporate tax cuts that could allow many companies to repatriate cash and enhance corporate earnings. Bush argued this would mean more cash on balance sheets and less concern over meeting interest payments.
Trump’s protectionist promises could also support domestic companies or support high-yield firms with relatively larger exposure to the U.S. market.
“The high yield sector climbed 17.5% in 2016, its sixth best year in 30 years, notes Marty Fridson, chief investment officer of Lehmann Livian Fridson Advisors, in a recent report on S&P Global Market Intelligence’s LCD News. Taking into account financial and economic conditions, he considers it very overvalued.” according to Barron’s.
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.