As Rates Tumble, Yield Hunters Pour Into Junk FundsBy and
Biggest high-yield ETF had largest weekly infow since 2016
‘I think of it really as positive sentiment for equities’
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 return profile.”
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 $350 million.
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.”
— With assistance by Tom Lagerman