The high yield bond market has continued to reap the benefits
of low interest rates and a hunger for yield that has
fixed-income investors climbing down the credit ladder. This
healthy demand has helped push prices in many junk bond
to all-time highs, which in turn has pressed yields near
The iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:
) is the largest ETF in this space with more than $13.7 billion
in total assets. This fund invests in 940 individual bonds of
companies with below investment grade credit quality and charges
an annual expense ratio of 0.50 percent.
So far this year, HYG has gained 4.87 percent in total return
and is currently sporting a 30-day SEC yield of 4.19 percent.
When you consider the 12-month trailing distribution rate on HYG
is listed at 5.69 percent, you can see just how far the yield has
fallen on this ETF over the last year as the price continues to
Fed Minutes Set To Impact These ETFs
Despite this strong historical momentum, recent sluggish price
action may point to HYG and similar ETFs such as theSPDR Barclays
High Yield Bond ETF (NYSE:
) hitting a temporary plateau.
This may be the result of investors pulling back their
appetite for risk and re-allocating to other income opportunities
, and preferred stocks which have all had much stronger returns
Watching the Money
Another interesting phenomenon is watching asset flows in this
space. So far this year, HYG has lost more than $1.6 billion in
total assets, while short-duration funds have seen strong
inflows. The PIMCO 0-5 Year High Yield Bond ETF (NYSE:
) and SPDR Barclays Short Term High Yield Bond (NYSE:
) have experienced combined growth in assets of $2.8 billion in
The lower duration of these ETFs make them less sensitive to
changes in interest rates, which may be a rotation strategy to
shelter high yield portfolios from the risk of rising rates.
Many fixed-income experts have been concerned with the level
of complacency in high yield bonds over the last several years
and worry about the volatility that can expand if credit markets
contract. Virtually any sign of stock market weakness or economic
instability could impact this high yield sector in a negative
Despite these risks, high yield bonds continue to produce a
level of income that many investors can't replace in this low
interest rate environment. For that reason, they may continue to
see strong demand for the foreseeable future.
© 2014 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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