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Junk bond fund draws $622M as negative yields go global

As investors await a Fed rate cut as soon as this month, yield-seekers are finding refuge in U.S. ETFs.

The products have benefited from the past decade of “economic expansion and bull market for risk assets,” one expert says.
April 17

The $19 billion iShares iBoxx High Yield Corporate Bond ETF (HYG) took in more than $622 million on Friday, the largest addition to the fund in a month, data compiled by Bloomberg show. The latest interest in riskier corporate debt follows a pick-up in demand last month, when almost $3 billion poured into the ETF, delivering its best month of inflows on record.

Managers reduced their allocation to Treasuries ahead of the Fed’s latest meeting to 24.2%, the lowest since September.
(EDITORS NOTE: Image was created using a variable planed lens.) The Marriner S. Eccles Federal Reserve building stands in Washington, D.C., U.S., on Friday, Nov. 18, 2016. Federal Reserve Chair Janet Yellen told lawmakers on Thursday that she intends to stay in the job until her term expires in January 2018 while extolling the virtues of the Fed's independence from political interference. Photographer: Andrew Harrer/Bloomberg

Enthusiasm for speculative-grade credit has become a global phenomenon as yields compress amid dovish language from central banks around the world. With markets near certain that the Fed will lower interest rates later this month, the debate is now over the size of the cut and its impact.

About $13 trillion of global debt already carries negative yields, pushing investors to take more risk to generate greater returns.

“In a world where you have very low yields on risk-free assets, people are looking for yield in other places,” said Sameer Samana, senior global market strategist for Wells Fargo Investment Institute. “If you’re an investor who has a required rate of return of 5%-plus, your options are fairly limited.”

Bloomberg News