With interest rates on a nosedive, exchange-traded fund buyers are
increasingly plunging into the junk-bond market.
Last week, the yield on 10-year Treasuries topped 3 percent and then
started tumbling, currently holding above 2.8 percent. Meanwhile, the largest
junk-bond ETF -- the iShares iBoxx $ High Yield Corporate
Bond ETF, ticker HYG -- took in more than $1.1 billion over the same
time frame, its largest weekly inflow since December 2016.
“It may be as simple as the search for yield,” said Sean Simko, head of
fixed-income portfolio management at SEI Investments Co. “If you feel corporate
balance sheets are healthy, high-grade exposure provides an enticing risk
Other funds tracking junk bonds also brought in cash, said Christian
Fromhertz, founder and chief executive officer of the trader education firm
Tribeca Trade Group. The second-largest high-yield ETF -- the SPDR Bloomberg
Barclays High Yield Bond ETF, ticker JNK -- had $410 million of inflows last
week, while the iShares iBoxx $ Investment Grade Corporate Bond ETF,
ticker LQD, and iShares JPMorgan
USD Emerging Markets Bond ETF, ticker EMB, each took in around
The action indicates “good breadth” and not just a “one-off inflow in
HYG,” said Fromhertz, who uses fund flow data to gauge sentiment. In this case,
the strength of junk could be a bullish indicator for stocks.
“As mostly an equity investor, it gives me kind of a warm and fuzzy
feeling when the fixed-income flows indicate more of a risk-on tone,” he said.
“I think of it really as positive sentiment for equities.”
Click here for the original article from Bloomberg.