While HYGH may take on more credit risks, the higher yields offered in the bond portfolio help shield investors from short-term rate rises that economists expect in the forthcoming months.
Related: Investors Flocked to Fixed-Income ETFs in June
Short Treasury Securities
According to an article in Reuters, only 25 percent of existing government bonds are trading above par value. The majority of government debt offered at a discount further points to a high-interest rate environment and investors are seeking higher yields.
Upon further inspection of the 10-year Treasury note, its yield has fallen flat after reaching a high of 3.11 percent in the middle of May. Since then, its yield has fallen by 8.04 percent.
While this may not bode well for fixed-income investors seeking higher yields in government debt securities, it falls right in line with strategies for HYGH by capitalizing on government debt falling out of favor with investors and moving their capital to higher-yielding corporate bonds.
By incorporating a long high-yield, short Treasury strategy, HYGH has been a stellar performer. Even in spite of the trade disputes between the United States, China and European Union having far-reaching effects on all capital markets, HYGH is up 1.86 percent year-to-date, 4.28 percent the past year and 4.93 percent in the past three years.
For more trends in fixed income, visit the Fixed Income Channel.