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Thursday, July 18, 2013

Investors (Finally) Moving to Short Term High Yield

I have written many times about moving high yield exposure to the shorter term instruments...seems some people are making the move albeit a bit late

From ETF Trends

Investors looking for a balance between yield and protection from rising interest rates have been moving into ETFs tracking speculative-grade corporate bonds with shorter durations.
PIMCO 0-5 Year High Yield Corporate Bond Index (HYS) andSPDR Barclays Short-Term High-Yield Bond ETF (SJNK) have gathered $602 million and $318 million, respectively, since the beginning of May, according to’s MoneyBeat blog.[These High-Yield Bond ETFs Protect Against Rising Rates]
The largest junk bond ETFs, iShares iBoxx High Yield Corporate Bond (HYG) and SPDR Barclays High Yield Bond (JNK), together have seen more than $3 billion move out the door over the same period as Treasury yields climbed. [High-Yield Bond ETFs Recovering from Taper Tantrum]
In the shorter duration junk bond ETFs, HYS has an SEC 30-day yield of 4% and an effective duration of 2 years, according to PIMCO. SJNK has a yield of 5.1% and a modified adjusted duration of about 2.3 years, according to State Street Global Advisors.
“Shorter-term junk bonds are lower volatility, so in a downdraft there’s a lot less downside than regular junk bonds,” said Chun Wang, co-portfolio manager at Leuthold Weeden Capital Management, in the MoneyBeat post.

The article doesn't mention HYLD which now has a yield over 8% and a duration of a bit over 3 years. A combination of HYS and HYLD might offer a nice balance of risk/return in terms of interest rate risk.
Below are  ytd returns and volatility measures for sjnk , hys and Hyld as well as the intermediate term HYG and JNK

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