Low Oil Still an Issue for Junk Bond ETFs

This year, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) and the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK), the two largest high-yield corporate bond exchange traded funds, as well as rival junk bond funds have been solid performers, but these funds have come under increased scrutiny as oil prices have remained low.

Slumping oil prices remain an issue for junk bond funds. Industry experts warn that more oil-and-gas companies could see already junk credit ratings pared if oil and natural gas prices remain low.

“Year-to-date, high yield and other spread products continue to produce solid returns. In the case of U.S. high yield, this is a bit surprising given the drop in oil prices, down around 10% year-to-date. After all, it was only 18 months ago that a plunge in oil prices, coupled with fears over Chinese growth, sent high yield plunging and credit spreads soaring. What has changed?,” said BlackRock in a recent note.

Even amid an environment that, at least on the surface, looks challenging for corporate bond ETFs, these products are proving popular.