Hello! This week’s ETF Wrap digs into junk bond performance and flows. Please send feedback and tips to [email protected] or [email protected]. You can also follow me on X at @cidzelis and find me on LinkedIn. Isabel Wang is at @Isabelxwang. Sign up here for our weekly ETF Wrap.
Investors have been fleeing exchange-traded funds that buy corporate junk debt, a risky pocket of fixed income that has been outperforming the total U.S. investment-grade bond market as yields surge. The jump in U.S. Treasury rates in 2023 have broadly hurt valuations in the bond market, with the iShares Core U.S. Aggregate Bond ETF losing 0.7% this year through Wednesday on a total return basis, according to FactSet data. But junk bonds have posted gains so far in 2023, with their higher yields helping to absorb a drop in prices. The ICE BofA US High Yield Index had an effective yield of around 9% on Wednesday, according to data on the website of the Federal Reserve Bank of St. Louis. “You’re getting a lot more carry,” said Steve Laipply, global co-head of bond ETFs at BlackRock, by phone. “That helps cushion price declines.” U.S. high-yield bonds compensated investors with a 4.33 percentage-point spread over comparable Treasurys as recently as Oct. 6, according to CreditSights data. The iShares iBoxx $ High Yield Corporate Bond ETF has a total return of around 4% in 2023 through Wednesday, FactSet data show. The SPDR Bloomberg High Yield Bond ETF returned a total of around 4.8% over the same period. High-yield, or junk, bond ETFs were falling Thursday as Treasury yields rose, after a report on inflation showed that headline consumer prices rose slightly more than Wall Street expectations for September. Shares of the iShares iBoxx High Yield Corporate Bond ETF
were down 0.5% on Thursday afternoon, while the SPDR Bloomberg High Yield Bond ETF
fell 0.6%, according to FactSet data. The iShares Core U.S. Aggregate Bond ETF
which tracks an index of the total U.S. investment-grade bond market including Treasurys, had a slightly larger decline of 0. …