By John Spence & Tom Lydon
JNK saw outflows of $378 million on Monday, the second-highest daily redemption in the ETF's history, according to Bloomberg.
"You're going to see more of these block trades happening here because it's replacing the credit-default swaps to some degree," said Peter Tchir, founder of New York-based TF Market Advisors, in the report. "People are starting to use it as a way to short blocks of ETFs and then do the exchange."
Junk bond ETFs have been very popular in recent years with investors stretching for yield as the Federal Reserve holds short-term rates near zero.
That demand has pushed debt prices higher and yields on some junk bond ETFs below 5% for the first time. For example, iShares iBoxx High Yield Corporate Bond Fund (NYSEARCA:HYG) has a 30-day SEC yield of 4.88%. The ETF holds $15.5 billion in assets.
"The five biggest ETFs that focus on speculative- grade debt have amassed more than $30 billion in the six years since the first such fund was created," Bloomberg reports.
High-yield bond ETFs continue to march higher despite some recent weak economic data.
"With defaults low, balance sheets healthy and rates going nowhere anytime soon, this playbook grows ever more popular," writes Josh Brown at the Reformed Broker blog.
"The combination of negative real yields in high quality bonds, yet on average reasonably healthy corporate fundamentals, support taking credit risk over interest rate risk," Merrill Lynch Wealth Management said in a report. "We do not see credit metrics flashing red yet and as long as corporations are maximizing their profit margins, we are comfortable that the extra risk in higher yielding bonds has the potential to be rewarded. We remain on the lookout for any signs of weakness in corporate balance sheets and while the rate of improvements has slowed, overall non- financial balance sheets remain healthy."
SPDR Barclays High Yield Bond ETF
Full disclosure: Tom Lydon's clients own HYG and JNK.
Disclosure: I am long HYG, JNK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.