Markets
LQD

How the Oil Crash Impacted the Junk Bond ETF World

A stock chart on display
Credit: Shutterstock photo

The continued crash in oil prices has been one of the biggest stories of 2015. And with crumbling prices, investors have been avoiding energy stocks and ETFs which have been awful performers on the year. But while many have focused in on the equity market, the high yield bond space is starting to show cracks now too (see all the High Yield Bond ETFs here ).

That is because many energy companies issued debt back when oil prices were closer to $75/bbl. and oil sands and other more difficult-to-reach types of oil seemed like solid investments. But now with prices languishing below $40, the prospect of those investments is looking quite poor and it is forcing some investors to question the long term viability of many companies in this space.

This is having a huge impact on the high yield bond ETF market as funds like HYG and JNK have easily underperformed their investment grade ( LQD ) and treasury ( IEF ) counterparts in the process. And with oil prices looking likely to stay low for quite some time, the pressure could definitely build on investments in this corner of the market (read Junk Bond ETFs: A Trouble Spot? ).

Other Factors?

But it is important to remember that ETFs like HYG and JNK have less than 20% of their assets in the energy space, so there really are other factors at play here too. Part of it is the higher interest rate environment and the possible deleveraging, as investors look to get out of riskier bonds and move into higher quality debt instead for protection. But for more on this junk bond crisis-as well as a few ETF options that could skirt by these issues-make sure to check out our short video below for more information:

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

ISHARS-IBX HYCB (HYG): ETF Research Reports

SPDR-BC HY BD (JNK): ETF Research Reports

ISHARS-IBX IG (LQD): ETF Research Reports

ISHARS-7-10YTB (IEF): ETF Research Reports

To read this article on Zacks.com click here.

Zacks Investment Research

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

LQD HYG IEF JNK

Other Topics

ETFs

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More