Fueling the increased demand for debt assets, tumbling yields on safer government and corporate debt pushed investors toward riskier and higher yielding debt, like junk bonds. Furthermore, U.S. corporate bonds are enjoying a stronger tailwind in an environment of strong economic growth, healthy earnings and dropping default rates.
Related: Active Bond ETFs in a Changing Market Environment
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. Due to their similar focus on liquidity, the two high-yield bond ETFs have similar portfolios.
“High-yield corporate debt has been one of the biggest beneficiaries of central-bank stimulus, which has squeezed spreads in better-quality bonds, forcing investors to seek returns elsewhere,” reports Bloomberg. “Now the market is losing its biggest buttresses as the Federal Reserve raises interest rates and the European Central Bank gets set to curtail its bond-buying program. Higher-risk assets, such as stocks, are also faltering as much-vaunted U.S. tax cuts face delays.”
For more on bond ETFs, visit our Fixed Income category.