A Technical Test For a Big Junk Bond ETF

Speculative-grade debt and junk bond exchange traded funds have strengthened as investors search for higher yielding assets in a low-rate environment. However, the greater demand has depressed yields, and some observers warn that high-yield debt may not be worth the greater risks.

“Gven the rapid, volatile downside movement in the shares over the past month, this surge in pessimism isn’t terribly surprising (currently, Trade-Alert places HYG’s 30-day historical volatility of 5.3% in the 81st percentile of its annual range),” notes Schaeffer’s. “Yet it’s worth noting that HYG, in recent days, has not only found its footing near key double-barreled support — but the ETF has also rallied sharply from this technical floor, simultaneous with a resurgence in net inflows in recent days, per etf.com, that have narrowed the fund’s month-to-date net outflows to $97 million.”

The $19.2 billion HYG has a 30-day SEC yield of 5.12% and an effective duration of 3.57 years. The ETF holds 1,033 junk-rated corporate bonds.

For more on bond ETFs, visit our Fixed Income category.