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, and rival high-yield corporate bond funds sold-off last week, prompting some market observers to speculate that could be a negative sign for riskier assets.

However, some bond market participants believe the recent pullback in high-yield debt was not all that surprising, particularly when noting how tight spreads had become.

“The sell-off should not have been much of a surprise given how tight high yield spreads had become. To start November, high yield bond spreads—a measure of credit risk—were 34% below their 20-year median,” said State Street Global Advisors (SSgA). “These spreads have compressed by more than 150 basis points in the last year alone. A little mean reversion was therefore not unfathomable given the yearlong rally in high yield.”

HYG’s underlying index, the Markit iBoxx USD Liquid High Yield Index, also requires holdings to have at least $400 million in par value, and the debt issuer must have at least $1 billion in total debt outstanding. Due to their similar focus on liquidity, the two high-yield bond ETFs have similar portfolios.

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