Advanced Theory & Practice of Bonds

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1-2 December 2021

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The largest high yield bond ETF, iShares iBoxx High Yield Corporate Bond (HYG) witnessed its second-largest daily inflows ever on Wednesday, March 10, pulling in $1.3bn. Investors also flocked to other junk bond ETFs as the SPDR Bloomberg Barclays High Yield Bond ETF (JNK) saw $560mn, the largest single day inflow since April last year, while the SPDR Bloomberg Barclays Short Term High Yield Bond ETF (SJNK) saw record flows of $228mn. For the $22bn HYG ETF, this was the largest single day inflow since June 2019, which saw a record single day inflow of $1.5bn.

This comes amid rising Treasury yields, which makes junk bonds relatively more attractive than investment grade bonds given that the former typically have a shorter tenor and higher coupon, both leading to a lower duration. While HYG has a duration of 3.6 years, the largest investment grade bond ETF LQD has a duration of ~10 years. Peter Chatwell, head of multi-asset strategy at Mizuho International Plc said, “What we’ve had in bond markets for much of the year to date is a selloff in duration, which has meant that high yield, which is high spread and low duration, has been the safer asset class. These flows reflect that, and we expect there will be further moves in that direction as U.S. growth becomes more broad based and helps to support the rest of the world.”

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