The 2018 Midterm Election results didn’t throw a curveball at investors as most expected a divided Congress would be the result, but a move into high-yield also came as the rally in the capital markets ensued.
A combination of rising interest rates, a healthy injection of government debt into the markets and other external factors has made for a more intricate bond market. The sell-offs in October was partly to blame as a confluence of these factors, which could signal that the environment for fixed-income investors will only get more complex.
“New cross-currents created by historic injections of central bank liquidity – as well as by demographics, technology, and regulation – have made it more complex,” an article in Institutional Investor noted. “A transition is under way as monetary policy normalizes, liquidity ebbs, and bouts of volatility are roiling the market. The implications for fixed income investors are significant.”
Related: Yields Tick Higher in Anticipation of Fed Likely Keeping Rates Unchanged
High-Yields in Favor Post-Midterm Elections
Post-midterm election bond activity saw investors clamoring for high yield bond ETFs as the capital market rally ensued. Some options to consider for high yield include the SPDR Bloomberg Barclays ST HY Bd ETF (NYSEArca: SJNK), iShares 0-5 Year High Yield Corp Bond ETF (NYSEArca: SHYG) and iShares iBoxx $ High Yield Corp Bond ETF (NYSEArca: HYG).
“Fixed income was active yesterday with the highlight in high yield–we saw a large rotation (~$700M) into High Yield names with large block buyers,” wrote Brian Gilman of Virtu Financial in an email.