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Junk bond ETFs suffered more than most in the May/June meltdown of the bond market. Investors pulled $2.2 billion from junk bond ETFs in June alone, on fears the Fed would soon begin tapering its $85 billion-per-month bond purchases, paving the way for higher interest rates.
However, in July investors returned, pumping in more than $2.6 billion according to data from BlackRock. Todd Shriber says investors were buoyed by a resurgence of issuance, lower yields, and a brightening outlook as downgrades slowed and the ratings outlook showed a less negative bias.
Since the start of July, the iShares iBoxx $ High Yield Corporate Bond ETF HYG -0.08% , the largest high-yield bond ETF, has traded modestly higher as has the rival the SPDR Barclays High Yield Bond JNK -0.10% . Those two ETFs have over $24.6 billion in combined assets under management.
So should you consider investing in the aforementioned funds? Well Michael Darda, chief economist and market strategist at MKM Partners says not. Michael points out that muni bonds look like a better bet for investors searching for yield than plumbing the depths of the corporate bond market.
MKM partners provided the following data for comparison.
Market Vectors High-Yield Municipal Index ETF (HYD) is yielding 6.01%, with a 10.02% tax-equivalent yield, while the iShares National AMT-Free Muni Bond ETF (MUB) yields 3.03% with a 5.05% tax-equivalent yield.
By comparison, on the corporate bond side the SPDR Barclays Capital High Yield Bond ETF (JNK) yields 5.94%, the iShares iBoxx $ InvesTop Investment Grade Corp. Bond Fund (LQD) yields 3.70%. The iShares Trust Barclays 20+ Year Treasury Bond Fund (TLT) yields 3.02%.
Todays Other Top Stories
MoneyBeat: – Fund manager bets bond market will bounce back. – One of the biggest global bond fund managers, Western Asset Management Co., has become a buyer of U.S. fixed-income assets since the recent bond market rout as many investors continue to worry about rising interest rates.
Barron’s: – Closed-end fund discounts are abnormal versus history. – In just a few months, the market for yield-rich closed-end funds has turned from persistent premiums to decent-sized discounts.
Learn Bonds: – Consider storing your money in this REIT’s preferreds. – In recent years, income-focused investors have been turning to REITs in search of decent yields. Within the REIT universe, there is plenty of attention given to the common shares of equity- and mortgage-REITs, and not enough attention given to the preferred shares. In this article, I would like to introduce you to the preferred shares of Public Storage, the world’s largest owner and operator of self-storage facilities.
MuniNetGuide: – Odd-lot muni traders get some love. – After last week’s relatively subdued activity level, the Treasury market is gearing up once again for a slew of key economic releases this week. If the recent strength of the dollar is any indication, the market is looking for much firmer economic growth in Q3 versus what turned out to be a rather lackluster Q2.
Market Realist: – Why are high yield volumes strong despite fund outflows? – With the issuance volumes across the high yield bond market and the leveraged loan market, the market seems like it should be back on a healthy note. On the other hand, the strong outflows in the high yield market the previous week are a reason for concern.
Bloomberg: – Costliest Mickey Mouse bonds refuting Detroit shock. – Municipal-bond investors seeking refuge from Detroit’s record bankruptcy may find it in Florida’s Reedy Creek Improvement District, which helps keep Walt Disney Co. (DIS)’s Magic Kingdom running and is planning its biggest borrowing since at least 1990.
Business Standard: – Bond fund investors should look at credit quality risk. – Slowing corporate growth could constrain bond-funds as risk of downgrades looms large.
FT: – Big drop in covered bonds as banks reduce borrowing. – Global covered bond issuance has fallen to its lowest level in more than a decade as banks prune balance sheets and reduce their borrowing.
The Detroit News: – Bond analyst calls for pressure on Detroit over unsecured debt handling. – An influential bond analyst is calling on mayors across America to contact Gov. Rick Snyder and urge him to protect Detroit’s general obligation municipal bondholders.
IndexUniverse: – Van Eck Plans Muni, EM Bond ETFs. – Van Eck Global, the money management firm behind the Market Vectors ETFs, is prepping a pair of fixed-income funds that will provide investors with exposure to debt from U.S. territories as well as emerging markets.
Market Oracle: – How to play the coming bond market crash. – You know it’s coming. Every experienced investor who is paying attention knows it’s coming. I’m talking about the upending of bonds that will take place in the months and years ahead. However, there is a smart, low-risk way to play it… and earn a decent return.
Ian Wyatt: – 2 Rules for owning muni bonds. – If you buy individual, highly rated muni bonds, you can achieve healthy returns. However, you must follow these two important rules.
Tim Rohkemper: – PIMCO Total Return – A competitive analysis and deep dive into derivative holdings. – I know that the word derivative concerns a lot of investors, but blaming the recent underperformance on PIMCO’s use of Derivatives is like blaming cameras for pornography – it would just be unfair. If Derivatives are used correctly they do not add significant risk to a portfolio, but can actually lower the overall volatility.
ETF Trends: – What’s on the horizon for muni bond ETFs. – According to Lipper, municipal bond fund outflows have continued from the retail sector for 10 consecutive weeks. I believe cash selling from municipal bond funds may have contributed to the higher rates and tested liquidity.
Trading Floor: – High flying for high yields. – The fear of tapering with higher yields as a result has led to a couple of doomsday scenarios for the high-yield bond sector this summer. Indeed, if tapering results in higher core yields, this will have an initial impact on most high-yield bond sectors.
Bloomberg: – Chicago Park District to test city taint with $163 million offer. – The Chicago Park District, which owns more than 8,100 acres of green space, plans to sell $163 million of tax-exempt debt as soon as Aug. 15 in the first general-obligation bond sale from an issuer in the city since its rating was cut last month.
FMS Bonds: – Investors in Michigan munis strike back. – As many municipal bond market participants warned, Detroit’s Emergency Manager Kevyn Orr’s proposed bankruptcy plan has had a negative impact on the ability of other Michigan issuers to access the market. The effects are being felt in cities, counties and other local governments throughout the state. It has triggered an angry response from investors, rating downgrades for neighboring municipalities and a wholesale rejection of Michigan bonds.
Municipals down in sympathy with Treasuries today and breaks quiet of Aug. Avg AAA yields higher by 0.04-0.07%
— AnthonyValeri (@Anthony_Valeri) August 13, 2013