Debt characteristics for inclusion in the index:
- Sector Corporate (industrial, financial institutions, utility) issues only.
- Eligible Currencies Principal and interest must be denominated in USD.
- Quality Securities must be rated high yield (Ba1/BB+/BB+ or below) using the middle rating of Moody’s, S&P and Fitch; when a rating from only two agencies is available, the lower is used; when only one agency rates a bond, that rating is used. In cases where explicit bond level ratings may not be available, other sources may be used to classify securities by credit quality: • Expected ratings at issuance may be used to ensure timely index inclusion or to classify split-rated issuers properly. • Unrated securities may use an issuer rating for index classification purposes if available. Unrated subordinated securities are included if a subordinated issuer rating is available.
- Amount Outstanding USD500mn minimum par amount outstanding.
- Largest Issuer Constraint Only the three largest securities, based on amount outstanding, from each issuer are included.
- Coupon • Fixed-rate coupon
In a rising interest rate environment, JNK can cushion the impact should the Federal Reserve continue to be hawkish on the economy if the latest data warrants more short-term interest rate spikes. In addition, a growing economy could signal less default rates for company debt included in the Bloomberg Barclays VLI.
Of course, with any investment that offers high-yield, an accompaniment of higher risk is typically the norm so an investor would be wise to perform his or her own due diligence prior to investing in high-yield bonds.
For more trends in the fixed income space, visit the Fixed Income Channel.