Some high-yield bond investors appear convinced the Federal Reserve will continue raising interest rates, prompting outflows from some junk bond exchange traded funds (ETFs), including the iShares 0-5 Year High Yield Corporate Bond ETF (NYSEArca: SHYG).
SHYG, which turns five years old in October, follows the Markit iBoxx USD Liquid High Yield 0-5 Index. The ETF has an effective duration of 2.41 years. Duration measures a bond’s sensitivity to changes in interest rates.
SHYG “had more than $465 million of outflows on Wednesday, the most ever in a single day. But that was just part of the $1.5 billion that’s left the fund over the last two weeks, as deserting investors have yanked almost 40 percent of its assets since May 29,” reports Bloomberg.
Corporate debt is reaching its highest level since before the financial crisis, which has caused Moody’s to warn that substantial trouble is ahead for junk bonds when the next downturn arrives.
Fed Moves & Higher Interest Rates
This year, expectations of higher interest rates have also chased investors from the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) and the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK), the two largest high-yield corporate bond exchange traded funds by assets. On a year-to-date basis, those two ETFs have lost nearly $4.9 billion in combined assets.