Investor Dumps Biggest Junk Bond ETFs as Market Sell-Off Deepens

(Bloomberg) -- At least one investor just called it quits on the world’s two largest junk-bond ETFs.

A trader sold close to 4 million shares worth $322 million of the iShares iBoxx High Yield Corporate Bond ETF, ticker HYG, at 11:21 a.m. in New York Thursday. About five minutes later, 8 million shares worth $267 million of the SPDR Bloomberg Barclays High Yield Bond ETF, ticker JNK, were sold. Then, another $350 million worth of HYG was unloaded at 1:39 p.m.

With pressure continuing to build in the credit market, junk bonds aren’t a popular place to park cash, according to Josh Lukeman, head of ETF market making for the Americas at Credit Suisse Group AG.

“This is a bid-wanted situation in high-yield credit ETFs,” he said. “HYG options are also very active, currently trading 400 percent above their average daily volume, with a 15-to-one put-to-call ratio.” The fund, which has declined for five straight days, is down 1.3 percent Thursday to the lowest since February 2016.

A bid-wanted situation is used by a seller who may forgo optimal pricing for the securities in lieu of unloading the position as soon as possible, Lukeman said.

Volatility surged for financial assets a day after the Federal Reserve sent shock waves across markets with less dovish than expected comments, pushing the U.S. dollar and crude lower. The rising threat of a government shutdown Thursday added to a laundry list of concerns battering stocks, which in turn continue to put pressure on high-yield bonds.

Investors have yanked more than $9.6 billion from U.S.-listed funds tracking the junk market this year, with December on track to be the first ever month of ETF outflows for the category.

To contact the reporter on this story: Carolina Wilson in New York City at cwilson166@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Eric J. Weiner, Dave Liedtka

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