Junk Bond ETFs fell to a 2-year low
Junk bonds and related exchange-traded funds plunged to their lowest level in two years this week as traders reduced exposure to this risky segment of fixed-income securities in anticipation of the Reserve’s hawkish monetary policy outlook. federal.
Since the beginning of the year, the iShares iBoxx $ High Yield Corp Bond ETF (NYSEArca: HYG) fell by 9.1% and the SPDR Bloomberg Barclays High Yield Bond ETF (JNK) fell 9.5%, dropping to its lowest levels since April 2020 on Monday.
Additionally, the two high-yield bond ETFs were among the most hated ETF games of 2022, with HYG recording $7.2 billion in net outflows and JNK recording $2.8 billion in redemptions, according to ETFdb data.
Meanwhile, the yield spread on the ICE BofA US High Yield Index, a commonly used benchmark for the junk bond market, widened to 405 basis points on Monday from 393 basis points last week. . Its biggest disparity since March 15, when the spread hit a 15-month high of 421 basis points, Bloomberg reports.
The widening spread between junk bond yields and safe-haven US Treasuries reflects heightened risk aversion in the current market environment.
Uncertainty has grown in recent weeks as markets grow weary of the Fed’s ability to properly handle a soft landing for a rapidly expanding economy and high inflationary pressures.
Many expect Fed officials to announce a 50 basis point interest rate hike and quantitative tightening, or cancellation of its bond-buying program, to combat the level of four-decade high inflation.
As a result, the tighter monetary policy outlook has weighed on the fixed income market, particularly riskier assets like speculative securities.
“Continued Fed Ferocity — both growing adoption of 50 basis point moves and renewed interest in QT — have helped push real and nominal yields to new highs,” Goldman Sachs says in a research note.
“This mix ultimately led to pressure on equities and credit, exacerbated by concerns about risks to growth,” the bank’s analysts added.
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