Why investor appetite for high yield bonds (JNK) is dwindling

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While the high yield bond (HYG) issuance came back to life last week, investor appetite was back to a weak level

Sprint may have priced a record deal, but it’s likely that the coming weeks may not be as easy. Outflows last week totaled over $416 million, compared to the minimal $55 million inflow the previous week. Over the past four weeks, $3 billion has exited the market, so the tone is down and will likely remain down.

That is, until the FOMC (Federal Open Market Committee) meeting coming up on September 17 and 18 announces whether or not tapering will start right away. The consensus continues to be that some level of tapering will start, so if that is the case, investor appetite will only get weaker from here.

Big bond names up, though most bonds down

Despite the weakness in flows, the HY CDX20 index closed up almost 0.3% higher, though the index follows only the largest high yield issuances. The popular high yield bond ETFs, (HYG) and (JNK), were actually approximately 0.8% down for the week.

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Retail investors should bear in mind that the broad bond indices don’t always move in sync with the main bond ETFs. Year-to-date, the HY CDX 20 Index has returned 2.75%, while HYG and JNK have lost 2.9% and 2.7%, respectively. In terms of market uncertainty, investors may pile onto the larger, stabler names, which make up only a fraction of the market exposure targeted by the ETFs.

Not all fixed income markets were down last week. Leveraged loans (BKLN) were up 0.2%. Read on to learn what happened with leveraged loans.

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