Displaying items by tag: high yield
High Yield ETF’s Influence on Bond Market Rising
According to research from data analytics company Coalition Greenwich, the influence of some corporate bond ETFs on their underlying holdings has increased, as the electronification of fixed-income trading has created an upheaval in how bonds are traded. The firm found that the trading volumes of 12 of the largest corporate bond ETFs rose from 18% of the turnover in their constituent investment grade and high-yield bonds in 2021 to 23% in 2022. In addition, the proportion was even more marked when Coalition Greenwich narrowed its focus to the five high-yield ETFs in its study. In this case, it found average daily notional volume soared from 30.5% of the underlying bonds in 2021 to 47.4%. What this means is that ETFs accounted for nearly half of the daily traded value of the underlying bonds. Kevin McPartland, head of market structure and technology research at Coalition Greenwich stated, “In the last three years everything has changed, all bond market participants now traded at least some of their volume electronically, which was transforming the market.” The increasing share of volume traded is an indication of a revolution in which corporate bonds are traded. Fixed-income ETFs have helped to increase the electronification of the corporate bond market, which has resulted in better price discovery, liquidity, and tighter spreads.
Finsum:According to research from data analytics company Coalition Greenwich,the trading volumes of some of the largest corporate bond ETFs are rising and accounting for a higher daily traded value of the underlying bonds.
Which Bond ETFs Held Up Best in February?
U.S. government and corporate bond ETFs took a hit in February, as Treasury yields rose due to continuing fears over high inflation. According to a February 28 note from Lawrence Gillum, fixed income strategist for LPL Financial, “While bonds are back, 2023 may be bumpy. We don’t think we’ll see another year like 2022 anytime soon, but despite the higher starting yield levels, we could see periods of negative returns.” For instance, according to FactSet data, the Vanguard Total Bond Market ETF (BND) fell 2.7% last month, while the iShares 20+ Treasury Bond ETF (TLT) dropped 4.9% in February. When bond yields rise, prices of debt fall. However, shorter-duration Treasury bonds fared much better than longer-term U.S. debt last month as investors adjusted their rate expectations. For example, the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) posted a small return of 0.3% in February. In addition, two-year Treasury yields, ended February at 4.795%, up from 0.730% at the end of 2021 as higher yields have been attracting investors after rates surged last year.
Finsum:While longer-duration bond ETFs faltered last month due to continuing fears over inflation, shorter-duration Treasury bond ETFs such as the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) fared much better.
Billions Flooding into Junk Bond ETFs
Warnings are piling up for high-yield bonds. The asset class could take a big hit if the Fed’s rate hikes push the U.S. economy into a recession, sparking rating downgrades and defaults. But that hasn’t stopped investors from piling into junk bond ETFs. In fact, of the nearly $11 billion that flooded into fixed-income ETFs over the past week, $1.6 billion flowed into the iShares iBoxx High Yield Corporate Bond ETF (HYG), the most of any fund, according to Bloomberg data. It’s difficult for investors to resist yields near the highest levels of the past decade according to CreditSights. Zachary Griffiths, a senior fixed-income strategist with CreditSights, said the following on Bloomberg Television, “Yields look too good to be short. The potential for returns in the 12% area makes high-yield an attractive place to be and we’re also more optimistic on the economic front, which is very important for our call.” With money flowing into high yield and other corporate credit, demand is falling for cash-like short-term bond ETFs. For example, more than $860 million flowed out of the iShares 0-3 Month Treasury Bond ETF (SGOV) in the past week, after $6.6 billion flowed into the fund last year.
Finsum:With yields on high-yield bonds near a ten-year high, it’s difficult for investors to resist junk bond ETFs, even with warnings piling up.
High Yield Bond ETFs Seeing a Jump in Inflows
High Yield Bond ETFs have seen a resurgence in inflows over the past few months. Between September 9th to December 9th, $5.4 billion in capital moved into 53 high-yield bond funds that are part of ETF Central’s high-yield bond category. This includes inflows of $2.7 billion over the past month. The uptick in inflows suggests that investors are more willing to take on risk now. High-yield bond ETFs may have higher rates and return potential, but also come with greater default risk. The jump in flows can be attributed to lower-than-expected inflation data, which could lead investors to believe that the Fed might slow down its tightening cycle. For instance, the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent in November on a seasonally adjusted basis, after increasing 0.4 percent in October. In addition, many investors have been sitting on the sidelines due to the uncertainty in the market and waiting for the time to deploy cash into riskier investments such as high-yield bond ETFs. Plus, the spreads in high-yield bonds have been widening this year, which indicates lower prices and selling pressure on the category. With spreads still fairly wide, there is potential for more upside in high-yield bonds.
Finsum:High-yield bond ETFs are seeing a jump in flows on account of lower-than-expected inflation data, cash on the sidelines being put to use, and fairly wide spreads in high-yield bonds.
VanEck Launches Actively Managed High Yield ETF
VanEck recently announced the launch of an actively managed multi-asset income-focused ETF that offers diversified exposure to the highest-yielding segments of the equity income and fixed income markets. The VanEck Dynamic High Income ETF (INC), which trades on the NYSE, seeks to identify compelling sources of high income and dividends and builds a corresponding portfolio primarily of ETFs. INC's fixed income component is made up of exposure to "fallen angel" high-yield bonds, international and emerging market high-yield bonds, emerging market local currency bonds, and 10–20-year U.S. Treasuries. Its equity component will include exposure to dividend-paying stocks, business development companies, preferred securities, mortgage REITs, and MLPs. The fund’s management team, which is led by David Schassler, seeks to maximize yield per unit of risk by assessing volatility and correlation data to optimize and refine specific exposures. The ETF is also designed to adapt quickly to changing market conditions and take advantage of price anomalies in the market.
Finsum:VanEck adds to its asset allocation-focused ETF lineup with the launch of a multi-asset income fund that offers exposure to the highest-yielding segments of the market.