Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

A Bond ETF To Watch As Fed Weighs Interest Rate Move

By (Tezcan Gecgil/ )ETFsJul 15, 2021 04:28AM ET
A Bond ETF To Watch As Fed Weighs Interest Rate Move
By (Tezcan Gecgil/ )   |  Jul 15, 2021 04:28AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

As the earnings season gets under way, many readers may be wonder if the wobbly price action in equity markets could continue into late summer. As a result, interest in bonds, which typically have a low correlation to stocks, has been rising.

A discussion on bonds would not be complete without looking at the potential effects of interest rates. The SEC reminds investors:

“A fundamental principle of bond investing is that market interest rates and bond prices generally move in opposite directions. When interest rates rise, prices of fixed-rate bonds fall. This phenomenon is known as interest rate risk."

The U.S. currently has record-low interest rates. However, given the recent inflationary pressure, the Fed could start increasing rates. Yet, many analysts wonder whether the Fed is ready to take that step.

Meanwhile, recent trading action, especially last week, saw the U.S. 10-year Treasury yield decline to the current level of about 1.39. In May, it was shy of 1.7. In other words, despite the recovery in the U.S. economy as well as increasing inflation, the 10-year Treasury yield has been falling.

To put rates in perspective, readers might be interested to know that in January 2017, the yield was hovering around 2.5. In March 2020, when the pandemic started making headlines in the U.S., it rapidly fell towards the 0.6 level.

As yields are inversely related to bond prices, when discussing bonds, headlines usually refer to bond yields, as in "bond yields rose yesterday," rather than highlighting bond prices, as in "bond prices fell." Such a focus on yields enables investors to compare bonds with different maturities and coupons more easily.

Here is a bond exchange-traded fund (ETF) that might appeal to a range of market participants.

iShares iBoxx $ High Yield Corporate Bond ETF

Current Price: $87.85
52-Week Range: $82.03 - $88.10
Yield: 4.44%
Expense Ratio: 0.48% per year

The iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG) tracks the Markit iBoxx USD Liquid High Yield Index comprised of U.S. dollar-denominated, high-yield corporate bonds. The fund started trading in April 2007. Its net assets stand at $20.3 billion.

HYG Weekly
HYG Weekly

HYG currently has 1,302 holdings. Among the leading corporations whose bonds the fund holds are Clear Channel Outdoor Holdings (NYSE:CCO), Ford Motor (NYSE:F), Occidental Petroleum (NYSE:OXY), Bausch Health Companies (NYSE:BHC) and Centene (NYSE:CNC).

Exactly 55.05% of the bonds come from issuers with BB credit ratings. Next in line are B-rated issuers (31.94%) and CCC-rated (11.72%). In other words, these issuers are not necessarily high quality, and may even come with default risk. As a result, the ETF offers a high yield as compensation for taking on such elevated credit risk.

The fund’s top 10 holdings are fairly well-known businesses and account for 4.4% of the fund. In terms of the sub-sectoral breakdown, the consumer cyclical sector makes up the highest portion, with 19.53%; followed by the communications and the consumer non-cyclical sectors, with 18.62% and 14.60%, respectively.

In terms of maturities, the fund seeks a breakdown that concentrates in the 0-10-year period. The weighted average maturity period of the ETF is 3.67 years. Understandably, unlike an individual bond, a bond ETF does not mature. Fund managers typically keep this average maturity by continually buying and selling bonds.

The effective duration of the fund is 3.58 years. In other words, if interest rates were to rise by 1%, the value of the portfolio would roughly fall by 3.58%.

Over the past year, HYG is up 6.9% and is currently hovering at multi-year highs. This means investors have been happy to bid prices higher as they perceive value in such corporate bonds with low quality ratings.

If interest rates stay low, investors in an ETF like HYG could easily continue to enjoy the high return offered by the fund. However, if the next move in interest rates is up, then the outlook for HYG could also change easily.

A Bond ETF To Watch As Fed Weighs Interest Rate Move

Related Articles

BlackBull Markets
Yellow Card For Sports ETF By BlackBull Markets - Sep 01, 2021

Cristiano Ronaldo announced that he would be leaving Juventus Football Club (MI:JUVE) and returning to play for the club where he started his professional career, Manchester United...

Damian Rodgers
A Gold ETF That Pays You Monthly By Damian Rodgers - Jul 29, 2021

There is a problem with gold ETFs like GLD (NYSE:GLD), iShares Gold Trust (NYSE:IAU), and GraniteShares Gold Trust (NYSE:BAR). They don’t pay any yield at all to investors. Gold...

A Bond ETF To Watch As Fed Weighs Interest Rate Move

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Emmanuel Sam
Emmanuel Sam Jul 15, 2021 5:21PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I love your rate
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email