US high yield corporate bond ETF drops to 8-month low after Powell’s announcement


A bundle of US five dollar bills is inspected at the Bureau of Engraving and Printing in Washington on March 26, 2015. REUTERS / Gary Cameron

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CHICAGO, Nov.22 (Reuters) – Investors on Monday sought to shed some risk in the U.S. corporate bond market, pushing a fund that tracks the high yield bond sector to its lowest level since March after the appointment of Jerome Powell for a second term as chairman of the Federal Reserve. raised expectations for faster rate hikes.

The iShares iBoxx exchange-traded fund (HYG.P) fell about 0.38% to its lowest level in eight months at $ 86.22.

Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research in New York City, said there was some shift in risk assets as US Treasury yields increased with the two-year yield, which generally moves in line with interest rate expectations, exceeding 0.59%, its highest level since early March 2020.

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“If the market is correct that the Fed is going to tighten two or three times next year, then financial conditions are going to get tougher and some of the lower quality companies in the high yield market are going to struggle,” he said. Jones said.

“You tend to see a reduction in risk when you enter a cycle of rate hikes or rate tightening,” she added.

As the end of 2021 approaches, investors could also cash in on gains.

Kenneth Monaghan, co-director of high yield at Amundi Asset Management US, said after the industry record issuance and generally good performance, “people want to close down in this particularly grueling year.”

“If I had to guess what will happen by the end of the year, it will be a sideways conversation to perhaps modestly lower,” he said.

President Joe Biden appointed Powell for a second four-year term, positioning the former investment banker to continue the most significant monetary policy overhaul since the 1970s and finish guiding the economy out of the pandemic crisis . Read more

High yield bond spreads widened on Friday. After plunging to 303 basis points on November 8, the option-corrected spread on the ICE BofA US High Yield Index (.MERH0A0), a commonly used benchmark for the junk bond market, was 324 points base Friday, its widest since October 13.

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Reporting by Karen Pierog; Editing by Alden Bentley and David Gregorio

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