Junk bond ETFs have been garnering a lot of attention this year on investors’ drive for higher yields in the ultralow rate interest environment. Yields on Japan's benchmark 10-year government bond slid to sub-zero for the first time in February. Following the European Central Bank, Bank of Japan introduced negative interest rates in late January. Denmark, Sweden and Switzerland adopted similar measures (read more: Sector ETFs to Benefit from Global Negative Interest Rates).
Disappointing macroeconomic data, global market turbulence and threats to the stability of the U.S. economy grabbed headlines since the beginning of the year, leading to volatility across all asset classes. Meanwhile, treasury yields were also showing a downtrend.
However, the high-yield junk bond market has entered troubled zone with a lift in outlook for the U.S. and possibility of a sooner-than-expected rate hike.
With the tone of the minutes from the April FOMC meeting, released last week, being more hawkish than expected, chances of a rate hike in the June meeting have gone up. This could be due to a series of recently released upbeat U.S. economic data – related to retail, consumer sentiment, inflation, housing, labor market and manufacturing (read more: Fed to Hike in June? Expected ETF Moves).
Possibility of a sooner-than-expected potential rate hike also brings with it a shift in investor sentiment, which does not spell good for junk bonds. Given the situation, many investors are pulling their money out of the junk bond market. Below, we highlight a few junk bond ETFs that are likely to be in the spotlight in the upcoming sessions (see all High-Yield/Junk Bond ETFs here).
iShares iBoxx $ High Yield Corporate Bond ETF (HYG)
It is the largest and most liquid fund in the high yield bond space with AUM of $14.2 billion and average daily volume of more than 14.5 million shares. The fund charges investors 50 bps in fees per year. The fund tracks the Markit iBoxx USD Liquid High Yield Index and holds 1,001 securities in the basket. Effective duration and average maturity are 4.00 and 4.80 years, respectively. HYG added 7.7% in the last three months and has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook.
SPDR Barclays (LON:BARC) High Yield Bond (JNK)
This product accumulated about $12 billion in its asset base. It offers exposure to the high yield corner of the bond ETF world and follows the Barclays High Yield Very Liquid Index. The fund holds 810 low-rated (BB and lower) corporate bonds with average maturity of 6.14 years and modified adjusted duration of 4.20 years. Expense ratio came in at 0.40% while volume is robust as the fund exchanges more than 13.2 million shares a day. The ETF gained 8.8% in the last 3 months and has a Zacks ETF Rank of 4 with a High risk outlook (read: Junk versus Investment Grade Corporate Bond ETFs).
SPDR Barclays Short Term High Yield Bond ETF (SJNK)
This fund tracks the Barclays US High Yield 350mn Cash Pay 0-5 Yr 2% Capped Index and holds 725 securities in the basket. The fund has a total asset base of $2.9 billion while it exchanges more than 1.6 million shares a day. It has average maturity of 3.23 years and modified adjusted duration of 2.36 years. Expense ratio came in at 0.40%. The product is up 8.3% in the last 3 months and has a Zacks ETF Rank of 4 with a Medium risk outlook.
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ISHARS-IBX HYCB (HYG): ETF Research Reports
SPDR-BC HY BD (JNK): ETF Research Reports
SPDR-BC ST HY B (SJNK): ETF Research Reports
Original post
Zacks Investment Research
Disappointing macroeconomic data, global market turbulence and threats to the stability of the U.S. economy grabbed headlines since the beginning of the year, leading to volatility across all asset classes. Meanwhile, treasury yields were also showing a downtrend.
However, the high-yield junk bond market has entered troubled zone with a lift in outlook for the U.S. and possibility of a sooner-than-expected rate hike.
With the tone of the minutes from the April FOMC meeting, released last week, being more hawkish than expected, chances of a rate hike in the June meeting have gone up. This could be due to a series of recently released upbeat U.S. economic data – related to retail, consumer sentiment, inflation, housing, labor market and manufacturing (read more: Fed to Hike in June? Expected ETF Moves).
Possibility of a sooner-than-expected potential rate hike also brings with it a shift in investor sentiment, which does not spell good for junk bonds. Given the situation, many investors are pulling their money out of the junk bond market. Below, we highlight a few junk bond ETFs that are likely to be in the spotlight in the upcoming sessions (see all High-Yield/Junk Bond ETFs here).
iShares iBoxx $ High Yield Corporate Bond ETF (HYG)
It is the largest and most liquid fund in the high yield bond space with AUM of $14.2 billion and average daily volume of more than 14.5 million shares. The fund charges investors 50 bps in fees per year. The fund tracks the Markit iBoxx USD Liquid High Yield Index and holds 1,001 securities in the basket. Effective duration and average maturity are 4.00 and 4.80 years, respectively. HYG added 7.7% in the last three months and has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook.
SPDR Barclays (LON:BARC) High Yield Bond (JNK)
This product accumulated about $12 billion in its asset base. It offers exposure to the high yield corner of the bond ETF world and follows the Barclays High Yield Very Liquid Index. The fund holds 810 low-rated (BB and lower) corporate bonds with average maturity of 6.14 years and modified adjusted duration of 4.20 years. Expense ratio came in at 0.40% while volume is robust as the fund exchanges more than 13.2 million shares a day. The ETF gained 8.8% in the last 3 months and has a Zacks ETF Rank of 4 with a High risk outlook (read: Junk versus Investment Grade Corporate Bond ETFs).
SPDR Barclays Short Term High Yield Bond ETF (SJNK)
This fund tracks the Barclays US High Yield 350mn Cash Pay 0-5 Yr 2% Capped Index and holds 725 securities in the basket. The fund has a total asset base of $2.9 billion while it exchanges more than 1.6 million shares a day. It has average maturity of 3.23 years and modified adjusted duration of 2.36 years. Expense ratio came in at 0.40%. The product is up 8.3% in the last 3 months and has a Zacks ETF Rank of 4 with a Medium risk outlook.
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
SPDR-BC ST HY B (SJNK): ETF Research Reports
Original post
Zacks Investment Research