Investors Fled Junk Bond ETFs as Crude Plunged Most Since 2015
Investors Fled Junk Bond ETFs as Crude Plunged Most Since 2015
(Bloomberg) -- The two largest junk bond exchange-traded funds hemorrhaged assets Tuesday as oil fell the most in more than three years.
Investors pulled more than $524 million from the $8 billion SPDR Bloomberg Barclays High Yield Bond ETF, ticker JNK, and $780 million from the $14 billion iShares iBoxx High Yield Corporate Bond ETF, or HYG. Combined, it was the third-largest outflow for the funds this year.
Junk bond funds are particularly sensitive to crude price movements because oil companies are heavily represented in the indexes. In addition, investors are becoming increasingly skittish about risky assets, like high-yield debt, because of concerns about a jump in volatility, escalating trade fights, earnings and geopolitical tensions.
“Both funds continue to break year-to-date lows, and credit spreads are starting to widen,” said Mohit Bajaj, director of exchange-traded funds at WallachBeth Capital. “As that happens, we tend to see investors get out of riskier debt instruments as the market sells off.”
The price of oil has slipped more than 25 percent from its early October peak. It hit a one-year low Tuesday, which helped push yields on junk bonds to a 30-month high.
The funds will “reflect this quickly given the sizable nature of energy as part of a lot of high-yield indexes, especially in lower quality portions of these indexes,” said Matt Forester, chief investment officer of BNY Mellon’s Lockwood Advisors.
Oil prices managed to recover Wednesday, with West Texas Intermediate crude rising above $56 a barrel after Bloomberg reported that the Organization of the Petroleum Exporting Countries and its allies are considering cutting output by more than the 1 million barrels per day proposed by Saudi Arabia. Still, shares of both ETFs are trading lower for a fifth straight day.
The Bloomberg Barclays US Corporate High Yield Index, which is about 15 percent weighted in energy, lost 0.4 percent on Tuesday.
To contact the reporter on this story: Vildana Hajric in New York at vhajric1@bloomberg.net
To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Eric J. Weiner, Joanna Ossinger
©2018 Bloomberg L.P.