The Federal Open Market Committee is in the midst of a two-day meeting to discuss the current economic landscape and upcoming moves on monetary policy, which will include a policy decision announcement set to take place today with bond markets already reacting ahead of the decision.
The latest data from the Department of Commerce reveals gross domestic product rising by 4.1% in June, which could be a key motivator for the Fed with respect to determining monetary policy. Yesterday, Vanguard Interm-Term Corp Bd ETF (NASDAQ: JNK) received an influx of 35.82 million and SPDR Blmbg BarclaysST HY Bd ETF (NYSEArca: SJNK) saw an uptick in buy volumes with $39.03 million worth of trading volume experienced.
However, despite the activity, analysts aren’t expecting a dramatic change in the Fed’s current policy.
“We expect only minor changes to the policy statement to reflect the latest developments in the economy,” economists at Bank of America Merrill Lynch wrote in a research note.
Related: An ETF That Taps Into Closed-End Funds for High Yields
JNK seeks to provide investment results that correspond generally to the price and yield performance of the Bloomberg Barclays High Yield Very Liquid Index, which is designed to measure the performance of publicly issued U.S. dollar denominated high yield corporate bonds with above-average liquidity. While down 1.19% year-to-date based on Yahoo! Finance numbers, JNK is up 0.61% the past year and up 3.26% the last three years.
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. SJNK has returned 1.20% year-to-date, 2.94% the past year and 3.76% the last three years.
While junk bond ETFs like JNK and SJNK have a higher degree of credit risk, it’s interesting to note that Bloomberg recently revealed that these ETFs are actually less volatile than the indexes they track.
Interest in Short-Term Debt
Short-term corporate bond ETFs like the Vanguard Short-Term Corporate Bond ETF (NASDAQ: VCSH) also saw an uptick in activity. VCSH experienced $258.70 million in trading activity the past 24 hours, more than doubling the daily average volume of $124.68 million in trading activity.
VCSH tracks the performance of the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index–a market-weighted corporate bond index with a short-term dollar-weighted average maturity. In addition to VCSH allocating capital towards debt issues that are investment-grade, fixed-income investors will like the reduced exposure to duration with maturities between 1 and 5 years.
For more trends in fixed income, visit the Fixed Income Channel.