High-yield bonds may also be less negatively impacted by a rising rate environment. Junk bonds often perform well in times of rising rates, as long as the rate increases are driven by improving economic activity as we are witnessing now. The stronger economic growth makes it easier for companies to earn a return on capital and to pay down debt.
HYLV’s underlying index features 420 bonds with an effective duration of 4.22 years. Duration measures a bond’s sensitivity to changes in interest rates. HYLV has a trailing 12-month yield of 3.94%, according to Morningstar data.
For more information on the speculative-grade debt market, visit our junk bonds category.