Amid talk the Federal Reserve may curb its purchases of Treasuries and mortgages, investors are curbing their exposure to investment-grade corporate debt exchange traded funds, which experienced heavy selling and decreased the most in almost two years.
The iShares iBoxx Investment Grade Corporate Bond ETF (LQD) fell 1.4% Wednesday, its largest decline since August 2011. According to Bloomberg data, the fund has witnessed $3.4 billion in outflows so far this year.
LQD was down more than 1% again on Thursday.
Analysts anticipate that the selling will continue over the next couple of days, reports Vivianne Rodrigues for Financial Times.
The sell-off occurred as the benchmark 10-year Treasury bond yields reached 2.44%, jumping 5.4% Thursday.
Junk bonds were especially vulnerable to the price swings as investors no longer felt speculative debt yields adequately compensated for the higher risks.
“All these people who lined up to buy high-yield bonds, only looking to get that extra yield and not paying much attention to the credit quality of these companies, are now just trying to get out,” Adrian Miller, director of fixed income strategy at GMP Securities, said in the Financial Times article.
The SPDR Barclays Capital High Yield Bond (JNK) was 1.0% lower Thursday.
iShares iBoxx Investment Grade Corporate Bond ETF
For more information on corporate debt, visit our corporate bonds category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own LQD and JNK.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.