Shorts Target A Big High-Yield Bond ETF

“It’s a costly wager considering the fund’s hefty price tag,” reports Bloomberg. “The ETF, which is managed by State Street Corp., has an implied dividend yield of 5.7 percent, which is how much those making the short bets have to pay lenders annually. So, for the shorts to break even, JNK would have to fall more than that amount over the course of a year. The fund posted a slight gain in 2017 and climbed 7.5 percent in 2016.”

JNK, which is more than a decade old, holds 950 junk bonds. The ETF’s option-adjusted duration is just over 4.1 years. Duration measures a bond’s sensitivity to changes in interest rates.

“It’s been a rough ride for the high-yield bond market of late, with the Bloomberg Barclays U.S. Corporate High-Yield Total Return Index falling 2 percent since the gauge’s high on Jan. 26. Last year, the index rose more than 7 percent as investors took persistently low interest rates and muted stock volatility as signals to pile into riskier assets,” according to Bloomberg.

For more information on the fixed-income market, visit our bond ETFs category.