Junk Bond ETFs See Heavy Outflows on the Risk-Off Trade

Many are also concerned about what rising rates will do to speculative-grade companies that will find it harder to pay back loans with higher rates.

“One really key point is that there is a tremendous amount of debt that is going to be coming due across investment and high yield starting in 2019 and extending across 2024,” Max Gokhman, head of asset allocation for Pacific Life Fund Advisors, told the Financial Times. “If rates are coming up, you will be refinancing into higher rates.”

Nevertheless, the huge outflows in the junk bond market may also reveal the improved health of the overall market during volatile conditions as many investors find robust liquidity in ETF trades. For example, over 37 million shares of HYG exchanged hands on Thursday, the most for a single day since February, Bloomberg reports.

“The ETF market, which was supposed to subtract liquidity from credit markets, is actually adding liquidity by aggregating the risk and bringing in people who want to take macro risk as opposed to micro bond level risk,” Krishna Memani, head of fixed income at OppenheimerFunds Inc, told Bloomberg. “The ETF market ends up providing the live bid-ask spread that even the credit markets themselves cannot generate.”

For more information on the ETF industry, visit our ETF performance reports category.