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LQD, JNK Parting Ways In Market Turmoil

Amid deepening gloom about the global economic outlook, some of the ETF market’s most-popular U.S. corporate bond ETFs are moving further apart, as junk bond credits succumb to more of the selling pressure that has pushed the Dow Jones industrial average down about 4 percent this year.

Both the SPDR Barclays Capital High Yield Bond ETF (NYSEArca:JNK) and the iShares iBoxx $ High Yield Corporate Bond Fund (NYSEArca:HYG) lost ground today as stocks sold off for the third straight day. A dismal August employment report last Friday showing the U.S. economy generated zero jobs last month has gone a long way toward sucking hope of continuing growth out of financial markets.

Conversely, the $14.6 billion iShares iBoxx $ Investment Grade Corporate Bond Fund NYSEArca:LQD) represented something of a flight to quality trade in Tuesday’s trading session, demonstrating that investors are separating the wheat from the chaff in corporate debt markets.

JNK’s price fell 0.46 percent today to $37.86 a share, while HYG’s fell 1.18 percent to $85.97 a share. LQD’s price meanwhile rose 0.66 percent to $113.35 a share, according to data on Google Finance. The Dow fell about 100 points, or 0.9 percent, settling at 11,139.30. JNK has upward of $7 billion in assets, while HYG has more than $8 billion.

It’s hardly news that junk bonds are the fixed-income market’s equivalent of equities, often closely tracking the rise and fall of stocks. But to see investment-grade and high-yield corporate bond prices significantly diverge in one trading session is one more sign that anxiety about a new recession is mounting. Investment-grade bonds weather downturns better than junk bonds, with fewer defaults, and investors appear to be running for cover.

Flows Tell The Tale Too

Investment flows in the past month into LQD and out of JNK and HYG also show clear signs of mounting worries about the economic outlook.

LQD pulled in $416 million in new assets last month, while JNK and HYG lost $332 million and $184 million, respectively, according to data compiled by IndexUniverse.

Other bond funds have been also gathering assets, as they too have been riding the wave of mounting anxiety.

The SPDR Barclays Capital 1-3 Month T-Bill (NYSEArca:BIL) was last month’s second-most-popular ETF, and the Vanguard Total Bond Market ETF (NYSEArca:BND) made it onto the “Top Gainers” table in our August ETF flows story.

BIL pulled in more than $2 billion, while BND gathered almost $725 million in new money in August, as investors turned defensive looking for places to protect capital.


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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.

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