Junk Bond ETFs: Punching Above Their Weight
As Wall Street dealers retreat from the bond market, exchange-traded funds are expanding – even, to some degree, taking the retreating dealers’ place.
Nowhere is the trend clearer than in the $1.3 trillion market for junk bonds, where fast-trading ETFs are punching well above their $36 billion weight, a report this week from Fitch Ratings confirms.
Fitch finds the average weekly trading volume of high-yield bond ETFs has risen by 18% since early 2013. If that sounds modest, compare it to what happened in the trading of actual junk bonds – a fall of 6% over the same period. The contrast is notable considering that it excludes the frenzied trading of late May to mid-July, when ETF activity soared even higher.
As to dealers’ retreat, Fitch finds that the assets in ETFs such as SPDR Barclays Capital High Yield Bond ETF (JNK) and iShares iBoxx High Yield Corporate Bond ETF (HYG) are now five times bigger than the dealers’ inventories. Translation: When investors these days need to tap the market right away, the ETF set is ready....MORE
