High Yield Bonds Rates Will Do Well

Should high-yield bonds have an interest rate component to their returns? At the moment, the market certainly thinks the answer is yes. Before rallying the last two days, the iShares iBoxx $ HY Corp (HYG) ETF was down 4.9% since May 8.

The reasons aren't hard to see. Last week there was a record outflow from high-yield bond funds -- $4.8 billion, or a whopping 2.3% of total assets. Importantly, the exodus is clearly related to fears that interest rates are on the rise, as evidenced by the $1 billion inflow into floating-rate bank loan funds. Just to be crystal clear: both HY bonds and HY loans are about equally exposed to the credit cycle. The only difference is one is fixed rate and the other is floating rate....546 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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