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Investors Grow Wary of High-Yield, Junk Bond ETFs


After staging a decent rally this year, high-yield speculative-grade bond exchange traded funds are now experiencing large withdrawals.

Retail investors pulled $1.96 billion from U.S. high-yield funds for the week ended March 11, with 97% of the total, or $1.91 billion, from ETFs, writes Matthew Fuller of S&P Capital IQ on Forbes.

Over the week ended March 11, the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) experienced $1.5 billion in outflows and the SPDR Barclays High Yield Bond ETF (JNK) saw $921.6 million in redemptions, according to ETF.com.

The large withdrawals and pullback in high-yield bonds may be in response to the sudden influx of $11 billion in speculative-grade debt to hit the market, the biggest sale of securities in almost a year and 26% ahead of last year’s supply, Bloomberg reports.

Over the past week, HYG dipped 0.8% and JNK fell 0.5%.

“The market is showing some indigestion,” John McClain, a money manager at Diamond Hill Capital Management Inc., said in the Bloomberg article. “It’s harder to find value with a lot of companies taking a ‘now or never’ approach to the market, pouring a lot of supply into the market.”

Additionally, short-duration junk bond options also experienced modest inflows, which suggests that some investors may be hedging against potential rate risks ahead. For instance, the SPDR Barclays Short Term High Yield Bond ETF (SJNK) , which has a 2.28 year duration, attracted $96.5 million in assets for the week ended March 11 while the iShares 0-5 Year High Yield Corporate Bond ETF (SHYG) , which has a 2.26 year duration, added $4.9 million in assets. In contrast, HYG has a 4.03 year duration and JNK has a 4.22 year duration – duration is a measure of a bond fund’s sensitivity to changes interest rates, so a lower duration corresponds with a smaller sensitivity. [Short-Duration Bond ETFs to Mitigate Potential Volatility]

iShares iBoxx $ High Yield Corporate Bond ETF


For more information on the speculative-grade debt market, visit our junk bonds category.

Max Chen contributed to this article.

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.