Tag Archives: junk bonds

HYG v VIX
ETF News, Fixed Income, People Profiles

High-Yield Credit Spreads, HYG and VIX-Reading The Tea Leaves

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MarketsMuse followers have been reminded more than a few times that conventional wisdom requires investors to keep their eyes on corporate bond spreads so as to have a clear lens when considering the outlook for equity prices on a medium-to-longer time frame. The relationship between high-yield debt,most-often measured by HYG (the high-yield bond exchanged-traded fund) and VIX–the latter of which is an often misunderstood metric, is a telling indicator for stock investors. And, those who are experts at reading the tea leaves are pointing to red flags on the horizon..

Courtesy of CNBC, Neil Azous of Rareview Macro and Andrew Burkly of Oppenheimer, two of the industry’s most sensible pundits discuss the cause and ramifications of the recent junk bond sell-off, pointing to high yield bond ETF $HYG as a meter benchmark to in the video below..

ETF News

High-Yield ETFs Lure Investors Bypassing Dealers: Credit Markets

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reporting from Lisa Abramowicz

Exchange-traded funds that own junk bonds are attracting unprecedented sums of cash from institutional investors seeking to slip in and out of the market as dealer inventories decline.

Institutional holders own 51 percent of BlackRock Inc.’s high-yield ETF, up 11 percentage points this year, according to data compiled by Bloomberg. The portion at State Street Corp. (STT)’s fund has grown to 60 percent, a rise of 18 percentage points.

The two funds, which allow individual investors access to the junk-bond market for as little as $37.59 a share, are attracting buyers from Bank of America Corp. (BAC) to Northern Trust Corp. as primary dealers gut corporate bond holdings by 81 percent since 2007. The market shift was underscored last month, when an investor redeemed as much as $780 million shares in State Street’s fund for the equivalent amount of bonds.

“Liquidity is the main reason that we’re using high-yield ETFs right now rather than high-yield bonds,” Tim Anderson, chief fixed-income officer at RiverFront Investment Group LLC in Richmond, Virginia said in a telephone interview. “In the good old days you could call up one of the major firms and there’d be a halfway decent shot you could sell $15 million, $30 million of bonds to them on the line,” said Anderson, whose firm is the sixth-biggest institutional shareholder in State Street’s fund. “They’re not keeping the same inventories anymore.”

“ETFs have increasingly become a more viable way to express credit views,” said Eric Gross, a credit strategist at Barclays Plc in New York. “We’ve seen corporate bond liquidity go down across both investment grade and high yield.”

“As long as something like JNK or HYG is easy to trade and relatively liquid, I’m not sure why anyone would go through the hassle of chasing down all the bonds, unless they were very good at doing it,” said Chris Hempstead, director of ETF execution at WallachBeth Capital LLC in New York. “It may be an affordable way to get exposure to the bonds.” Continue reading →