Bond market’s storm hits junk debt, buyers shun ETFs
Investors are starting to flee, yanking $1.5 billion from the two biggest high-yield bond exchange-traded funds over the past week, according to data compiled by Bloomberg.
This is a reversal in fate for bonds that had gained 4.8 per cent in the first five months of 2015 and suggests that junk-bond investors will only tolerate rising benchmark yields for so long before they, too, bail.
“Price action was miserable across risk assets yesterday,” Peter Tchir, head of macro credit strategy at Brean Capital LLC, wrote in a note Tuesday. “It was the first time since yields shot higher that credit markets felt weak.”
Indeed, high-yield bonds were remarkably stable in May as German government bonds led the world’s bond market down 0.5 per cent, according to Bank of America Merrill Lynch index data. That same month, global junk notes gained 0.4 per cent.
And in April, as global bonds fell 0.6 per cent, speculative-grade securities handed buyers 1.6 per cent.
Part of the risky debt’s erstwhile resilience had to do with oil prices as the rebound in that market bolstered energy-company bonds that had been hammered at the end of 2014.
Also, speculative-grade notes tend to have shorter maturities and fatter cushions of extra yield over benchmarks than higher-rated bonds, features that can protect the market in periods of rising rates and climbing inflati
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