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Cracks Showing in High-Yield Bond ETFs


Exchange traded funds that invest in junk bonds have been one of the most popular ETF categories in 2012 as investors stretch for yield. However, the funds stumbling this week suggests investors are easing back on risk.

For example, SPDR Barclays High Yield Bond ETF (JNK) finally bounced Thursday at its 50-day moving average following an eight-day slide. Trading volume in JNK has picked up a bit this week.

The ETF was trading at a discount to indicative value earlier this week amid the selling. [High-Yield Bond ETFs Trading at Discount After Pullback]

Investors have pulled $317.9 million from the junk bond fund the past week, according to IndexUniverse ETF flow data.

In fact, junk bond funds saw their first weekly outflow in four months, Barron’s reports.

“Investors might finally be dialing back their expectations for the junk bond market after its most recent foray into record-low yield territory and record-high dollar prices,” Michael Aneiro says.

Also in the high-yield bond market, spreads – or risk premiums over Treasuries – and yields have both been on the rise lately, he writes in a separate blog post for Barron’s.

“This could be simply that the market’s taking a breather after shattering previous record-low yield levels,” Aneiro said.

JNK and iShares iBoxx High Yield Corporate Bond (HYG) are the largest junk bond ETFs. The funds invest in speculative-grade corporate debt and are paying 30-day SEC yields just shy of 6%.

SPDR Barclays High Yield Bond ETF

Full disclosure: Tom Lydon’s clients own HYG and JNK.

The opinions and forecasts expressed herein are solely those of John Spence, 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.