Junk Bond ETFs Have Rough Two Weeks: Deals Pulled, Outflows Rise

Tyler Durden's picture

Submitted by Mish Shedlock

Volatility has returned, at least in the junk bond market. JNK, the Barclays High Yield Bond ETF, and HYG, the iShares High Yield Bond ETF, both had the steepest decline in three months. Is this another buy the dip opportunity, or is risk avoidance about to take hold?

Cracks Widen

Cracks in the red-hot U.S. high-yield bond market are starting to widen, with two junk-rated companies pulling their deals on Friday and U.S.-based high-yield funds suffering their second consecutive week of cash withdrawals.

“Folks have become super negative on risk all of a sudden,” said Greg Peters, managing director and senior portfolio manager at PGIM Fixed Income.

On Friday, coal producer Canyon Consolidated Resources became the second junk-rated company to pull a bond sale this week amid a bout of volatility in credit markets. NRG Energy pulled its junk bond offering on Thursday as spreads across the asset class widened sharply and the two main junk bond ETFs reached seven-month lows.

Bank of America Corp analysts said in a note on Friday that volatility in high-yield has been “driven primarily by a confluence of several meaningful and yet only loosely related events,” including the collapse of the Sprint Corp and T-Mobile U.S. Inc merger, the U.S. Justice Department’s challenges to the AT&T Inc and Time Warner Inc merger, a credit downgrade for Teva Pharmaceutical Industries Ltd and other industry-specific news along with the potential for tax reform to be delayed.

The analysts also said the flatness of the yield curve has been hurting high yield, partly by hurting bank stocks, which benefit from a steeper yield curve that allows them to borrow cheaply, lend at higher rates and profit from the difference.

JNK Daily

HYG Daily

Another Dip Buying Opportunity?

The declines look meaningful, but if you crunch the numbers, the total decline over the past two weeks is just over one percent. Monthly charts make it appear as if nothing happened at all.

JNK Monthly

HYG Monthly

On a monthly basis, it's hard to label these moves as "dips". Then again are things expected to rise forever?

Yield Curve

Analysts stated "flatness of the yield curve has been hurting high yield."Starting mid-2016, the ETFs rose 20 out of 23 months with the yield curve flattening throughout 2017.

Volatility Not Started

Volatility has not yet started, despite claims to the contrary.Is this the start of a meaningful decline?I do not know, nor does anyone else. But I do suspect that cracks will appear first in the credit markets.

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spanish inquisition's picture

Keep buying em. When the yield for junk goes below treasuries, that means the government will back em if anything goes wrong. Pretty sure that's what it means.....

GUS100CORRINA's picture

Observation: These markets are so broken ... BUY, BUY, BUY because the we are in the 9th inning on the march toward the end and the CBs have no other option.

Everyone is all in. Damn the torpedoes and the mines, full steam ahead.

All of the heads of state know it.

Manthong's picture

Passive “investing “ is a cool thing…

If you are brain dead


BTW …. Investing really does not happen nowadays…. it’s all about following the bank scam.



Mtnrunnr's picture

The rich will never foot the bill for this, They'll try to pin tax payers with this again. Hopefully this time we don't let them. But they'll use fear and probably dilute us for all we're worth again.

Crazy Or Not's picture

So let me get this straight, Saudi Arabia's robbing & harvesting Princes.
Lebanese PM's in Saudi Lock up. & Lebanon's to be gang fucked by Saudi's + Israel while Hesbullah's tooling up with Iranians (who're simultaniously tooling up with Yemen to ass hammer Saudi's).
Israel's wetting its shorts to go toe to toe with Iran and breach Lebanon en route to Damascus (with US Cash + Arabic bodies/assisted Arab genocide). 
Russia's bracing itself for part II of Live fire Syrian Arms Fair. and furiously pipeline laying to Beijing.
Sideshow kim's throwing his distraction hissy fit.
China's pissing itself laughing (behind a somber public composure) whilst puppeteering the whole shit show....
(while gathering spec's + intel on entire US Pacific Fleet & air support - which has convieniently shown up for Chinese weapons ranging practice exercises).
...and Trump's trying to gather a deal together so he can come home saying "I still run things round here!" Which clearly he (US) doesn't - not in Asia; Mid East - TBC.

And markets note a wobble just in time for Monday - fuck me I'm so surprised.

Arnold's picture

The only thing I would add is that the new printing press annexes in Europe and The US are larger and more user friendly than the original facilities.

Crazy Or Not's picture

Yep, that was lax of me - noted:
Op-ed update:

.... Jean-Claude Junkyard and the glazed eyed Seniors stare numbly from the Sanitarium Bus, while Batty May dumpster dives for leftovers. Their bastard offspring cash out to BTC whats left of the family silver as the whole neighborhood slides further into Eurostan projects. 

For Euro stratergy - see: bordering on totally irrelivant/ Russian cash cow.

or something like that?

Lost in translation's picture

You should be published.


Crazy Or Not's picture


Direktor Frau MesserschMerkel & NapoleMacron continue to advertise rehersals of Cabaret 2.0 but are yet to find a convincing Leading Male to EU CE Kitt Kat Klub standards... ;D)

ludwigvmises's picture

Shedlock is right. If anyone thinks last week was a "big selloff" in high yield they haven't seen sh** yet. That was nothing.

Obsidian Samctum's picture

Idiot baby boomers at it again.

Arnold's picture

Please sir, may I have Moar SNAP please...

--Scruffy Street Urchin

Winston Churchill's picture

If this part of banking is getting a fever what is happening in the shadow banking system ?

Tylers,  inquiring minds want to know please.

buzzsaw99's picture

the latest plunge is probably due in good part to sprint.  it wouldn't surprise me if certain, ahem, entities knew well in advance that those mergers were going to be blocked.  normally i would fault momos for the move but i don't think so this time.  welcome to the swamp bitchez.

abbottmd's picture

they are calling it a crash in JNK. look at the longer term chart. we have only given back a very tiny portion of gains since early 2016