Junk-Bond ETFs Rally After Biggest Fall in About a YearAdam Janofsky and Craig Giammona
High-yield, high-risk debt in the U.S. rose, ending six straight days of declines, as positive earnings results helped mitigate global credit worries, such as the shock from Argentina’s bond default.
Shares of BlackRock’s iShares iBoxx $ High Yield Corporate Bond ETF climbed 0.6 percent at 4:15 p.m. in New York, according to data compiled by Bloomberg. The exchange-traded fund, which uses shares that trade like stocks on exchanges, fell 2.1 percent in the five-day period ending Aug. 1, the biggest weekly decline since June 21, 2013, Bloomberg data show.
“That initial shock we saw last week, with Argentina and some other headwinds, is getting absorbed into the market,” Jody Lurie, a corporate-credit analyst at Janney Montgomery Scott LLC in Philadelphia, said in a telephone interview. “It’s a calming of the storm to some extent.”
The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, fell 17 basis points to 336.8 basis points at 4:56 p.m. in New York, Bloomberg prices show.
The gauge, which is used to protect against losses or to speculate on creditworthiness, climbed 32.7 basis points last week in its biggest weekly gain since September, the data show. The index typically rises as investor confidence deteriorates and falls as it improves.
Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Of the companies that have posted results so far this season, 76 percent beat earnings estimates and 65 percent exceeded sales projections, Bloomberg data show. Argentina missed an interest payment due July 30 on $539 million of restructured bonds, stoking concern the default would constrict credit markets.
High-yield, or junk, debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s.