Wait, It Isn’t Over Just Yet For High Yield Bonds | ETF Trends

In the current risk-off environment fueled by the coronavirus outbreak, it might seem like high yield bonds are being left to fall to the wayside, but with the central bank stepping in to purchase investment-grade corporate bonds, an interest in high yield may follow.

A recent Wall Street Journal report by Sam Goldfarb noted that more investors are “showing more appetite for speculative-grade corporate bonds and loans, the latest sign of easing credit-market conditions after markets seized up earlier in March. More optimistic that the U.S. will be able to pull through the coronavirus pandemic without a full-blown credit crisis, investors have been buying up speculative-grade bonds in the secondary market and some riskier companies are starting to issue bonds again.”

As the appetite for high yield increases, the notion is that the central bank could follow in tow.

“The Fed coming in and doing what they did help the investment-grade market, and as that started to firm up then you had high yield kind of start to follow suit,” said Dave Battilega, a portfolio manager at Three Peaks Capital Management.

High Yield ETF Options Today

If investors still want to quench their thirst for high yield debt, they can look to ETFs like The High Yield ETF (NYSEArca: HYLD). HYLD seeks high current income with a secondary goal of capital appreciation by selecting a focused portfolio of high-yield debt securities, which include senior and subordinated corporate debt obligations, such as loans, bonds, debentures, notes, and commercial paper.

Another option is the VanEck Vectors Fallen Angel High Yield Bond ETF (BATS: ANGL). ANGL seeks to replicate as closely as possible the price and yield performance of the ICE BofAML US Fallen Angel High Yield Index, which is comprised of below investment grade corporate bonds denominated in U.S. dollars that were rated investment grade at the time of issuance.

ANGL essentially focuses on debt that has fallen out of investment-grade favor and is now repurposed for high yield returns with the downgraded-to-junk status.

For investors seeking high-yielding income and emerging market exposure, they can look to the VanEck Vectors EM High Yield Bond ETF (NYSEArca: HYEM). HYEM seeks to replicate the ICE BofAML Diversified High Yield US Emerging Markets Corporate Plus Index, which is comprised of U.S. dollar-denominated bonds issued by non-sovereign emerging market issuers that have a below investment grade rating and that are issued in the major domestic and Eurobond markets.

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