The Bloomberg Barclays High Yield Energy Total Return Index was up 0.77%, marking its highest gain in two years since the Organization of the Petroleum Exporting Companies (OPEC) agreed to reduce supply for the first time in eight years on Nov. 30, 2016.
The bond move also saw Brent and crude oil tick higher as much as 2% ahead of the OPEC meeting on Thursday to discuss output as well as future strategy with oil producers outside of OPEC, such as Russia.
The gain in oil and high-yield energy bonds also came on the tailwinds of this past weekend’s G-20 Summit meeting between U.S. President Donald Trump and Chinese president Xi Jinping agreeing to stop further tariffs for 90 days while negotiating a permanent trade deal.
“The market seems positively oriented following the G-20 developments and heading into the OPEC meeting on Thursday,” said BNP Paribas commodities strategist Harry Tchilinguirian.
CCC-rated energy debt climbed its highest in two years on Monday ahead of the OPEC meeting.
High-Yield ETF Options to Consider
With high yield energy bonds gaining, some high-yield ETF options to consider include the iShares iBoxx High Yield Corp Bond ETF (NYSEArca: HYG), SPDR Bloomberg Barclays Short Term High Yield Bond ETF (NYSEArca: SJNK) and iShares 0-5 Year High Yield Corporate Bond ETF (NYSEArca: SHYG).
HYG tracks the investment results of the Markit iBoxx® USD Liquid High Yield Index, which is comprised of high yield U.S. corporate bonds that have less than investment-grade quality. Investors who have been able to forego the credit risk have seen total returns of 4.92% the last three years based on Yahoo! Finance performance figures.
SJNK seeks to provide investment results that correspond generally to the price and yield performance of the Bloomberg Barclays US High Yield 350mn Cash Pay 0-5 Yr 2% Capped Index. SJNK invests its total assets in the securities comprising the index, which is designed to measure the performance of short-term publicly issued U.S. dollar-denominated high yield corporate bonds. The short-term maturities will help hedge some credit risk due to the lesser exposure, but holdings are still less than investment-grade. SJNK has returned 2.23% year-to-date, 2.28% the past year and 5.47% the last three years.
SHYG seeks to track the investment results of the Markit iBoxx® USD Liquid High Yield 0-5 Index, which is primarily composed of U.S. dollar-denominated, high yield corporate bonds with remaining maturities of less than five years. Like SJNK, debt maturities are shorter, thereby helping to hedge some credit risk, but issues are still less than investment-grade. Nonetheless, SHYG has managed to return 2.18% year-to-date, 2.19% the past year and 5.34% the last three years.
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