Gains for high yield ETFs supported market fundamentals
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Fund flows are a key driver of the high yield capital markets and of the debt capital markets in general, and refer to the money invested by institutional investors into funds that invest in corporate debt. The leveraged loan market observes the mutual fund inflows while the high yield market observes the high yield funds inflows. When fund flows increase, there is more liquidity available to buy debt, which translates into increased demand and therefore cheaper rates (referred to as yield) paid to the investors by the issuing companies. Rates behave inversely proportional to the face value (price) of the debt, so when rates decrease, the price of the debt instruments (in this case high yield bonds) go up. In the opposite scenario, when investors withdraw funds from the market, the issuers need to pay higher rates to attract the investors and compete for their dollars. As long as fund flows continue to support the high yield rally, high yield bond focused ETFs such as iBoxx $ High Yield Corporate Bond Fund (HYG) and SPDR Barclays Capital High Yield Bond ETF (JNK) will continue to be supported.