The ETF Canaries Signaling Danger in the Credit Coal Mine
- High-yield data suggests risk appetite may be about to turn
- Case for credit still strong, but investors more discerning
Global corporate bonds have performed strongly this year across both primary and secondary markets, but some signs have emerged recently that risk assets could be approaching a turning point. Even if investors favor credit for its incremental yield, they are likely to become more discerning as political risks mount, Bloomberg strategist Simon Ballard writes.
After price appreciation over the past year, U.S. exchange-traded funds that invest in speculative-grade corporate bonds have started heading south this month. The iShares iBoxx dollar high-yield bond ETF has reversed all of its 2017 gains, having slipped from an historic high on Feb. 27. Meanwhile, the equivalent high-grade ETF is also now lower year-to-date, albeit having achieved less prior upside performance and still well off its July 2016 high.