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Investors Bet Against Junk Bond ETF Yielding 6%


Today we point out heavy put activity in generally infrequently traded iShares iBoxx $ High Yield Corporate Bond (HYG) options. This particular ETF is often seen as a “risk-on” play in that it targets exposure to high yield “junk” bonds, so it is very possible that a bearish speculator is looking for a reversal in the high yield corporate market (note that HYG traded at a new 52 multi-year high just as recently as Wednesday of this week).

It is also quite reasonable that a large institutional long term holder of the ETF is hedging an underlying position in HYG via these put trades. HYG has been a winner in 2012, rallying 4.52% YTD with trailing one year performance of +7.90%.

Yield thirsty investment managers have likely been attracted to the fund (30 Day SEC Yield of 5.58%) in 2012, as the ETF has reeled in an impressive $4.7 billion just year to date. [High-Yield ETFs Rallying to Cap Historic Year]

Top holdings in HYG currently are corporate bonds issued by the following companies 1. Sprint Nextel (0.62%), 2. CIT Group (0.59%), 3. HCA (0.52%), 4. Intelsat (0.50%), and 5. First Data (0.49%).

Other ETFs in the high yield arena that may see accelerated trading activity going into year’s end as portfolio managers re-balance portfolios likely giving a ton of consideration to their views on future tax policy, and given the performance in the space YTD include SPDR Barclays Capital High Yield Bond (JNK), Peritus High Yield (HYLD), PowerShares Senior Loan Portfolio (BKLN), PowerShares High Yield Corporate Bond (PHB), PIMCO 0-5 Year U.S. High Yield Corporate Bond (HYS) and (SPDR Barclays Capital Short Term High Yield Bond (SJNK) to name a few. [Senior Bank Loan ETFs Yielding 5%]

iShares iBoxx $ High Yield Corporate Bond


For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.