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'Thirst-for-yield is back:' Junk bond ETF takes in $1B

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As investors search for higher returns amid falling Treasury yields, they’re pouring billions of dollars into ETFs that track junk bonds.

The $9.3 billion SPDR Bloomberg Barclays High Yield Bond ETF (JNK) has seen seven straight days of inflows — the longest streak in six months. About $1.1 billion has been injected into the fund since March 5, boosting its assets by 13%.

Similarly, the $15.2 billion iShares iBoxx High Yield Corporate Bond ETF (HYG) has seen three straight days of inflows. Investors piled more than $843 million into the fund through Wednesday.


“The thirst-for-yield trade is back on,” said Bloomberg Intelligence analyst Eric Balchunas. “Junk bond ETFs had a rough 2018. They’re less appealing if you can get more yield from Treasurys. But when Treasurys are yielding less and less, it’s worth the risk to get it from junk bond ETFs, especially if you feel the Fed won’t raise rates.”

In a dovish pivot earlier this year, the Fed signaled that it won’t raise interest rates again until inflation accelerates. Yields on 10-year Treasury bonds have dropped since then, hovering around 2.6% from about 3.2% at the end of 2018.

Multiple rate hikes by the Fed last year contributed to less-than-stellar results.
February 6

The high-yield market is also absorbing a surge of new issuance, and rebounding from last week’s losses, encouraged by gains in equities.

“Investors are getting equity-like returns but at a lower volatility profile by expressing it through high-yield credit,” said Matthew Bartolini, the head of Americas research for State Street’s ETF business.

The inflows mark a notable turnaround from what junk bond funds saw at the end of 2018, when investors — amid a market meltdown — pulled money from U.S.-listed ETFs tracking the high-yield market. But the Bloomberg Barclays US Corporate High Yield Total Return Index has gained more than 7% since Christmas Eve, while JNK and HYG have each risen around 6% in the same period.

Bloomberg News