HYG’s underlying index, the Markit iBoxx USD Liquid High Yield Index, also requires holdings to have at least $400 million in par value, and the debt issuer must have at least $1 billion in total debt outstanding. Due to their similar focus on liquidity, the two high-yield bond ETFs have similar portfolios.
HYG more closely tracks its underlying index as the fund accurately reflects the prices available to the fund – mew bonds are added to the index at the ask but are subsequently priced at the bid, which helps reduce the gap with its index, but this also reduces the index’s return.
“Further, the 200-day moving average is trading just south of $88, which has been significant in and of itself, halting HYG rally efforts in both November and January,” notes Schaeffer’s. “This level also corresponds to significant call open interest at the newly front-month February 88 strike, with an ample 60,664 contracts outstanding. It should also be noted that former peak put open interest of nearly 140,000 contracts at the January 86 strike just expired, as did a healthy 80,000 January 87-strike puts, removing a potential layer of options-related support in the short term.”
For more on bond ETFs, visit our Fixed Income category.