Biggest Junk-Bond ETF Draws Most Cash Since 2020 as Debt Rallies

Exchange-traded fund investors are piling into bets on junk bonds as the securities start the year with a strong comeback.

More than $1.7 billion flooded the $18 billion iShares iBoxx High Yield Corporate Bond ETF (ticker HYG) last week as it rallied 2.6%. It was the biggest weekly haul since November 2020, data compiled by Bloomberg show.

The influx came amid a stock-and-bond rally sparked by growing conviction that inflation has peaked, which was reinforced by cooler-than-expected wage growth that may give the Federal Reserve room to ease up on its monetary policy tightening. That would be relief to markets hammered by an aggressive interest-rate hike cycle that drove bonds of all kinds to steep losses last year.

“The high-yield market has a lot of things going for it,” Winnie Cisar, CreditSights global head of credit strategy, said on Bloomberg Television’s Real Yield. “An almost 5% yield-to-worst feels pretty good; a good chunk of more-stressed issuers priced like they are trade-to-default this year feels pretty good; the fact that it’s much higher in quality now than it has been historically — with less of double Bs and still some rising-star capital structures — that feels pretty good.”

HYG plunged more than 15% in 2022 as the Fed moved to rein in the steepest inflation since the 1980s, marking the worst annual performance since the nearly 25% drawdown in 2008. That sparked a $3.3 billion exodus last year, following a $4 billion outflow in 2021.