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Another High Yield, Short Duration ETF to Consider

Many investors typically view credit risk as the primary risk associated with high-yield bonds.

Although 10-year Treasury yields have plunged 18.3% this year, flows data for some marquee junk bond ETFs show investors are also concerned about the specter of rising interest rates and the subsequent impact on high-yield debt.

For example, the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has lost over $2 billion in assets while the PIMCO 0-5 Year High Yield Corporate Bond (HYS) has pulled in $1.4 billion. The SPDR Barclays Short Term High Yield Bond ETF (SJNK) has added $1.1 billion. [Short Duration Junk ETFs Gain Fans]

HYS and SJNK have durations that average out to about two years while HYG’s duration is closer to four years. Investors can also access low duration, high-yield bonds at the global level with the Powershares Global Short Term High Yield Bond Portfolio (PGHY) .

With an allocation of 44.6% to the U.S., PGHY is suitable for the investor that is looking to skirt highly exotic international junk bonds. Importantly, the ETF delivers as advertised with a 30-day SEC yield of almost 4% and an effective duration of just 1.39 years, according to PowerShares data.

While PGHY is primarily a corporate bond ETF, sovereign debt occupies almost 13% of the fund’s weight. Of the fund’s 165 issues, 76% are rated either BB or B by Standard & Poor’s. [New Junk Bond ETF Deserves More Attention]

In terms of its international allocations, PGHY is not short on controversy as Russia, Brazil and Ukraine combine for 15.6% of the ETF’s weight. Brazil and Russia have both seen their sovereign ratings recently trimmed to BBB-, the lowest investment grade, by S&P.

However, PIMCO has said it sees value in Brazilian while other market observers view Russian bonds as attractively valued. Russian 10-year government bonds yield over 8.8%, more than double the 4.05% for the comparable Brazilian bonds. [PIMCO Sees Value in Brazilian Bonds]

As for Ukrainian bonds, yields on the government’s two-year debt have fallen to around 19% from 20% last week.

PGHY has remained durable through the Brazil and Russia downgrades and political uncertainty in Ukraine. The ETF is up almost 1% over the past month.

PGHY, which charges 0.35% per year, features a yield to worst of 4.09% and an average yield to maturity of 4.35%.

Powershares Global Short Term High Yield Bond Portfolio


Tom Lydon’s clients own shares of HYG.