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Slumping High-Yield ETFs See More Outflows

tlydon@globaltrend.com (Tom Lydon)

ETFs indexed to high-yield corporate bonds continue to experience outflows and selling pressure after they lost nearly 4% last month in the flight to safe-haven government bonds.

“High-yield mutual funds and exchange traded funds saw a net outflow of $382 million in the week ended Wednesday, May 30, according to Thomson Reuters-owned Lipper, marking the third straight week investors have lost faith in the sector,” Dow Jones Newswires reports.

In the previous week, junk bond funds saw net outflows of $2.5 billion, one of the largest weekly outflows in 20 years. [Are High-Yield ETF Flows Reversing After Buying Spree?]

There are several junk bond ETFs, including SPDR Barclays Capital High Yield Bond ETF (JNK - News), iShares iBoxx High Yield Fund (HYG - News), PowerShares High Yield Corporate (PHB - News) and PIMCO 0-5 Year High Yield Corporate Bond (HYS - News) . [Fallout for High-Yield ETFs After Big Trade, Moody’s Warning]

Many technical analysts watch junk bond ETFs to gauge the health of the debt markets and as a leading indicator for U.S. stocks.

“Big swings in ETFs and mutual funds have many professional investors worried about the potential disruption to prices of their underlying bonds, because outflows mean that fund managers need to find bonds to sell to meet redemptions,” Dow Jones Newswires reported.

Junk bond ETFs were down sharply for the second straight day after Friday’s weak nonfarm payrolls report. The funds are testing the 200-day simple moving average after May’s sell-off. Trading volume in high-yield bond ETFs spiked Thursday.

High-yield ETFs were a popular option in early 2012 as investors stretched to boost income.

iShares iBoxx High Yield Fund

Full disclosure: Tom Lydon’s clients own HYG.