Junk bonds and speculative-grade debt-related ETFs started off on a solid footing in the new year as fixed-income traders grow more bullish on this riskier segment of the bond market.
So far in 2019, the iShares iBoxx $ High Yield Corp Bond ETF (NYSEArca: HYG) gained 3.5% and the SPDR Bloomberg Barclays High Yield Bond ETF (NYSEArca: JNK) rose 3.7%.
Furthermore, investors have been piling into the junk bond segment, with HYG attracting $1.8 billion in net inflows and JNK bringing in $764 million in inflows over the past week, according to XTF data.
Market observers are growing more bullish on this debt category. Wells raised its high-yield total return forecast to 9.9%, compared to a 6% to 7% call last year, based on the attractive starting yield, fundamental backdrop and uptick in issuance as positive drivers, Bloomberg reports.
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Barclays raised its high-yield bond total return call to 6.5% to 7.5% from its previous 3.5% to 4.5% projection made at the end of November.
“We see more supportive technicals in place for high yield, with falling dependence on retail flows given our expectation of another year of shrinking new issue supply,” analysts led by Bradley Rogoff said in a recent report. The December slump was “more of a liquidity-driven event, as opposed to a more negative reassessment on growth and earnings prospects for the year ahead.”
JPMorgan Upgrades U.S. high-yield bond return expectations
JPMorgan also upgraded its U.S. high-yield bond return expectations to 8% from 3.3% at the end of November.
Additionally, the historically bearish Morgan Stanley even expects a better year for junk debt, lifting its high-yield total return forecast for 2019 to 4.5% from a 0.5% call previously. While analysts led by Adam Richmond warned that credit is in a long-term bear market, there are can still be pockets of “strong tactical rallies in between.”
“Our 2019 return forecasts are low, but marketing-to-market, the numbers look modestly better,” according to JPMorgan analysts.
For more information on the bond market, visit our fixed-income category.