Investors may have favored high-yield, speculative-grade debt due to the ongoing bullish environment as the junk bonds typically capture some of the upside of stocks and see increased returns despite rising rates. However, this bond asset category is more susceptible to risks and is vulnerable to a market pullback.
Todd Rosenbluth, director of mutual fund and ETF research at CFRA Research, argued that the moves in high yield debt reflects investor confidence in the economy and in the high-yield asset category in general. The strong corporate earnings and other economic indicators, along with flat returns from U.S. Treasuries, have pushed investors toward riskier debt options.
“When you see Treasury yields are low, people are more confident in taking a risk to get more yield,” Rosenbluth told CNBC. “Investors in the past have been more fearful of credit vehicles, but we’re in a risk-taking mode right now.”
For more information on the fixed-income market, visit our bond ETFs category.