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Barclays Global Investors [BGI] continues to expand its fixed-income exchange-traded fund offerings, launching a new junk bond ETF onto the American Stock Exchange yesterday morning. The iShares iBoxx $ High Yield Corporate Bond Fund (HYG) tracks a focused index of fifty (+/-) high-yield corporate credits. The index represents the most liquid corner of the high-yield market.

High-yield bonds are a unique assets class, paying a high yield but offering significant volatility as well. Bonds can appreciate sharply during good economic times, when defaults are low and risk discounting is reduced. When markets sour, however, credit spreads can widen and high yield can bear the brunt of the downturn.

BGI says the fund will be generally representative of the high-yield space, which Reuters says currently yields about 2.5 percent more than Treasuries.

The 50 basis point expense ratio for the new high-yield fund could turn off some investors, as it is extremely high for a bond ETF. Other iShares fixed-income funds charge between 15 and 25 basis points, and the new Vanguard ETFs charge just 11 basis points. While 50 basis points is still cheap compared to most high yield mutual funds, it is not immediately clear why the high yield ETF demands such a premium over other fixed-income ETFs. As currently structured, investors can find lower prices at places like Vanguard, which offers a high-yield, traditional mutual fund that charges just 26 basis points (although it comes with a 1 percent redemption fee for shares held less than one year).

iShares now offers sixteen fixed-income ETFs, up from just six last year. It recently got its first taste of competition in the fixed-income space, after Vanguard launched four bond ETFs this week that mix corporate and government credit.

Source: iShares Launches New Junk Bond ETF