High-Yield Bond ETF Liquidity in Focus
Junk-bond ETFs have become a hot topic in 2015, as liquidity concerns heat up ahead of potential Fed action.
Asset flows into the two largest junk-bond exchange-traded funds, iShares iBoxx $ High Yield Corporate Bond (HYG) and SPDR Barclays High Yield Bond ETF (JNK), have been extremely volatile over the past month or so, reminiscent of the taper tantrum in 2013. It's unclear whether the recent spike in redemptions was primarily a result of strategic investment decisions or if concerns of a potential liquidity crunch were the driving force. Fixed-income liquidity will continue to be a hot topic until the bond market shows it can handle a bout of heightened volatility in the event of a Fed rate hike later in the year.
Thus far, the two most popular ETFs have handled the increase in asset outflows quite well. Since the beginning of May, more than $3.1 billion has been redeemed from iShares' HYG, which currently has about $13.4 billion in net assets. SPDR's JNK, which has about $9.8 billion in total assets, saw outflows of more than $1.5 billion over the same trailing two-month period. These outflows, of course, are a measure of activity in the primary market. Fixed-income ETFs, like HYG and JNK, have essentially provided an additional layer of liquidity to the markets by bringing bonds, which trade over-the-counter, onto the exchange where investors can transact in the secondary market without disturbing the underlying portfolio of bonds.
John Gabriel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.