Pain Ahead for Junk Bond ETFs?
Risk-off mood hits junk bonds as CCC debt slides. While JNK, FTSL, HYLS & peers face pressure, safer plays like LQD should gain investor favor.
JNK: The Credit Cycle
The SPDR Bloomberg High Yield Bond ETF offers diversified exposure to US high-yield corporate bonds, aiming to convert credit risk premium into regular income. JNK's performance is driven by coupon income and price changes linked to credit spreads (OAS) and macroeconomic factors like bank lending (SLOOS) and real interest rates. Currently, OAS is in a low-mid range and bank lending is less tight than recent peaks, making carry the main source of return for JNK.
JNK Can Benefit From Lower Rates; Cuts May Be Pushed Out Due To Higher Inflation
JNK offers diversified high-yield bond exposure with limited concentration risk and a higher yield, offering investors a high-income, diversified portfolio strategy. The ETF is sensitive to interest rate movements; potential Fed rate cuts could benefit returns, but persistent inflation may delay such cuts. Sector exposures—especially consumer cyclicals—face headwinds from tariffs and inflation, while energy and communications present mixed outlooks.
JNK: Intensifying Spread Risk Has Yet To Be Priced By The Market
The SPDR® Bloomberg High Yield Bond ETF held up relatively well in the aftermath of the tariff debacle last week. Despite its relative performance, we see credit risk emerging, which has yet to be priced by the market. Migration risk will likely add a second layer of headwinds.
JNK: High-Yield Bonds Are About To Become Junk Again (Strong Sell Rating)
JNK is one of a pair of tenured high-yield bond ETFs, listed since 2007. This is a notoriously cyclical sub-sector of the bond market that is again showing signs that tell me to stay away. I am putting my money where my mouth is, as I own a put position on HYG, which trades in sync with JNK, but has a more liquid options market.
JNK And SJNK: Shrinking Spreads, Mounting Danger
Junk bonds currently offer a poor risk/reward profile due to low credit spreads and rising delinquency rates. "Fallen Angel" bonds, downgraded from investment-grade, present a potentially better alternative with higher credit quality and track record of outperformance. JNK and SJNK ETFs have high correlations with the equity market, offering limited diversification and experiencing sharp draw-downs during market crashes.
JNK: Underweighting Makes Sense
JNK provides exposure to high-yield junk bonds issued in the US. A high yield but faces high credit risk and refinancing risk amid current economic conditions. Despite its impressive long-term performance and diversification benefits, the ETF's risk-reward profile is less attractive now due to still restrictive interest rates and potential economic downturns. Underweighting JNK and overweighting long-term treasuries is reasonable.
Our Simple Plan To Hedge Volatility, Grab 8.5% Dividends
At times like these, with the economic outlook uncertain and volatility likely, we want to be certain of one thing: We're still in stocks (and stock-focused funds)! But of course, we want to make sure we're tempering our risk, as well.
1 High-Yield Dividend ETF to Buy to Generate Passive Income
Here is a great way to bring in extra cash.
Bonds Are Back: Here's How To Ride The Trend For 10% Income
The spike in volatility we've seen in the last month has gotten me thinking a lot about the last decade—when bonds were a bust and tech ruled the day.
Are Junk Bonds Sending A Bearish Message To Stocks?
Investors are constantly looking to gain an edge in the stock market. One simple way to understand risk in the marketplace is by following Junk Bonds.
JNK: Risk Vs. Reward Out Of Whack
SPDR Bloomberg High Yield Bond ETF offers high yield and modest capital gains. However, the credit risk is high as over 99% of the holdings are rated below investment grade. A 1.67% premium over the risk-free rate is simply too low, especially as risks are rising.
