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Wednesday, March 4, 2015

The Money Flows Back Into High Yield



Demand for high-yield corporate bond ETFs came back with a vengeance in February, with funds like the iShares iBoxx $ High Yield Corporate Bond ETF (HYG | B-64) and the SPDR Barclays High Yield Bond ETF (JNK | B-68) gathering a combined $3.5 billion during the month. The strong asset flows suggest appetite for yield is again alive and well among ETF investors. 

In February, the high-yield index underlying JNK, for instance, saw the greatest excess return over Treasurys since October 2011, Clayton Fresk of Stadion Money Management told That performance, as well as the demand for these bonds, can be explained by three factors, he noted:

  • No. 1: Stabilization of crude oil prices
As Fresk sees it, that has taken some of the focus off the large amount of oil-related business companies represented in the High Yield index and related ETFs.

  • No. 2: Value
“High yield spreads stabilized around the +500 basis point level during most of January, which were the widest level since late 2012,” Fresk noted. “A combination of capturing +5 percent to Treasurys with declining volatility in spreads are two factors that could lead investors to see value in the high-yield space.”

  • No. 3: Rates
The rate spike seen in February after January’s decline may have spooked some investors from Treasurys, he says. Based on flows, investors are favoring the less-interest-rate-sensitive aspects of high yield as a way to protect against climbing interest rates.

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