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High-Yield Bond ETFs Trading at Discount After Pullback


ETFs that invest in high-yield corporate bonds are stuck in a six-day losing streak and threatening to break below their 50-day moving averages for the first time since June.

SPDR Barclays Capital High Yield Bond (JNK) and iShares iBoxx High Yield Corporate Bond (HYG) are down more than 2% the past week.

The two largest junk-bond ETFs on the market are paying yields of nearly 6% and have been extremely popular with investors trying to boost income in a low-rate environment. [Higher Yields, Regulation Drive Junk Bond ETF Boom]

For example, HYG and JNK have been among the best-selling ETFs in the third quarter, hauling in $2.3 billion and 1.6 billion, respectively. HYG has gathered more than $1 billion in the past month alone, according to ETF flow data from IndexUniverse.

“The two biggest junk-bond exchange traded funds usually change hands at a premium to their net asset value, reflecting strong investor appetite. Not today, though. Indeed, investors’ appetite looks more sated than usual lately,” writes Brendan Conway at Barron’s.

HYG and JNK were both trading at discounts of nearly 1% to indicative value on Wednesday afternoon.

The slide in high-yield ETFs is notable because some analysts and investors watch the sector to gauge risk appetite in the market. Junk-bond ETFs often weaken before the trouble shows up in stocks.

iShares iBoxx High Yield Corporate Bond

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.