HYG’s underlying index, the Markit iBoxx USD Liquid High Yield Index, also requires holdings to have at least $400 million in par value, and the debt issuer must have at least $1 billion in total debt outstanding.
Harvard’s “endowment, according to its 13F filing, bought options on two exchange-traded funds — 4 million shares of iShares MSCI EAFE, which tracks stocks in developed countries excluding the U.S. and Canada, with a face value of $249.2 million, and 6.3 million shares of iShares MSCI Emerging Markets, with a face value of $248 million. The endowment also sold $91 million of the iShares MSCI Emerging Markets ETF in the first quarter,” according to Bloomberg.
Due to junk bond’s more “equity-like” nature compared to Treasuries or investment-grade debt, high-yield bonds could strengthen on the higher growth environment in the U.S., especially with rebounding oil prices that would further diminish credit risk for energy-related speculative-grade debt, the largest sector that makes up about 15% of high-yield market.
While interest rates are rising, rates are still hovering near historical lows, which will help make it easier for companies to repay debt or reduce default risks. More quick-witted corporate treasurers have already locked into low, long-term loans, further mitigating default risks.
For more information on the fixed-income market, visit our bond ETFs category.