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

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.


Crazy Or Not spanish inquisition Sun, 11/12/2017 - 10:19 Permalink

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).ed:...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.

In reply to by spanish inquisition

Crazy Or Not Arnold Sun, 11/12/2017 - 12:57 Permalink

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?

In reply to by Arnold

buzzsaw99 Sun, 11/12/2017 - 11:05 Permalink

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 Sun, 11/12/2017 - 11:44 Permalink

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