Corporate Bond ETFs Catching Up With Downturn

Jacob Harper |

Reality finally caught up with investors seeking to avoid the market downturn that took place following anticipation over the possibility of a tapering off of the Federal bond-buying program. Corporate bonds have already lost 3.1 percent this year based on those fears, and it was just a matter of time till the ETFs followed suit. The largest corporate junk bond ETF, Blackrock Inc.’s (BLK) iShares iBoxx $ High Yield Corporate Bond (HYG) dropped 6 percent on the week ending June 26. The ETF has recovered slightly, and is up 1.38 percent to hit 91.09 on July 8, though this is in defiance of general trends in the corporate bond ETF market.

Of the eight Corporate Bond ETFs that currently have assets over $1 million, every single one has lost money this year-to-date, with iShares iBoxx $ Investment Grade Corporate Bonds (LQD) posting the biggest loss of 6.53 percent. Of the four junk bond ETFs that have over $1 million in assets, all lost money as well, with SPDR Barclays Capital High Yield Bond ETF (JNK) leading the pack, with a loss of exactly 3 percent of its value YTD amidst heavy trading.

In June analyst Martin Fridson warned the junk bond market “hadn’t come back down to earth,” noting that at the time the market was overvalued by 96 basis points. It would appear that his predictions are coming to fruition, and that the corporate bond ETF market is catching up with its underlying securities.

Fed chairman Ben Bernanke is set to give a speech on July 10, and at that time could clear up uncertainty concerning the future of the bond-buying program.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


Symbol Name Price Change % Volume
BLK BlackRock Inc. 345.55 -3.62 -1.04 906,905
SCDA B-Scada Inc 0.65 0.00 0.00 0


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