Assets swing to and fro junk bond ETFs

The path of junk bond ETFs have been quite rough for the last couple of months. The space gave a dull show in 2014. The acute plunge in oil prices in the second half of the last year weighed heavily on the space, especially on the energy bonds.

Thanks to the shale-oil boom in the U.S., energy companies spread their presence heavily to the high-yield bond market. Thus, fears of their default amid the oil price rout triggered junk bond sell-offs. The rising rate worries in the U.S. also hurt the space badly.

When oil prices finally saw the face of recovery in early 2015, junk (high yield) bonds seemed to catching investors’ eye. But the return of rising rate concerns again wrecked havoc on the space.

Junk Bonds Space: A Star Earlier

Investors should note that over the last one-month period (as of May 6, 2015), WTI crude recovered over 10% while Brent crude advanced about 13%. Investors heaved a sigh of relief as the oil-induced sell-offs in the junk bond space seemed over.

The quest for higher yields had been another driver of high-yield bonds’ prosperity till May 6. Per Bloomberg, thanks to almost zero-or-negative-yield scenario in the Euro zone and Japan, investors flocked to the global high-yield space, betting about $9 million in assets in the year-to-date frame.

The Research house went on delivering data like ‘flows into junk-bond ETFs in the first four months of the year exceeded any comparable period since EPFR Global began compiling the data in 2007’. Bloomberg revealed, on May 4, that government bonds worldwide valued at about $2.36 trillion sport negative yields, which left investors with no options other than taking high risks.

After all, countries across the globe, from Europe to Asia-Pacific, jumped on the bandwagon of interest rate cuts with some introducing negative rates and launching QE policy to bolster waning growth and ward off deflationary pressures. Among the major central banks, the ECB rolled out the QE measure this year after months of speculation. Back home the Fed is also pointing to a delayed rate hike citing softness in U.S. economic growth.

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