Is Now the Time to Consider High-Yield Bond ETFs?
While junk bonds have often been considered the pariah of the bond market in the past, a robust fundamentals setting is helping to bolster what is frequently seen as one of the riskiest products in the financial markets. Bond yields, which run inversely with bond prices, for the lowest-grade bonds are near historic lows after a rollercoaster of a year that was rocked by the coronavirus pandemic. Nevertheless, many companies managed to post surprisingly healthy balance sheets. According to the ICE Bank of America High-Yield index, the junk bond sector collectively is yielding 3.97%. Thats after hitting a record low of 3.89% on Monday. Historically, junk bonds have average yields between 4% to 6% above those for comparable U.S. Treasuries, which are viewed as significantly safer. U.S. bonds are typically considered the benchmark for investment-grade bonds because the nation has never defaulted on a debt. In March 2020, at the height of pandemic volatility, the yield was at 9.2%. This was a historic moment, where the collective yield for junk was actually below the rate of inflation as measured by the now-hot consumer price index, which climbed 5.4% in June year over year.