US investors dump junk bond ETFs

26 August 2015

The spread on US high yield bonds above has blown out to levels last seen in 2012. Based on flows in exchange-traded funds (ETFs), high yield ETFs have experienced an exodus recently as investors jump to the safety of US Treasury bonds. Bonds with a credit rating below BBB- from S&P or Baa3 from Moody’s are colloquially known as below investment grade or “junk” bonds but their attraction to some investors lies in the high rate of interest paid on them. In the haste to get out of high yield ETFs, yields have shot up and the gap between junk bond yields and Treasury bonds yields has approached 650bps.

high-yield-spread