Biggest Junk-Bond ETF Jolted by Massive Redemptions Amid Rally

Biggest Junk-Bond ETF Jolted by Massive Redemptions Amid Rally

The largest exchange-traded fund that buys junk bonds may be flashing a warning that a three-month rally in the debt may be coming to an end.

BlackRock Inc.’s iShares iBoxx High Yield Corporate Bond ETF has seen 27.8 million shares redeemed, or about $2.6 billion, in the last four days, according to data compiled by Bloomberg. That’s the longest streak of losses since oil reached a bottom on Feb. 11. Junk debt has rallied as oil prices have recovered, with returns exceeding 12 percent in that time.

High-yield bonds have been benefiting from a turnaround in sentiment as investors embrace riskier assets amid signs of easing global monetary policy, rising commodity prices and inflows that came flooding back into the asset class. With anemic economic growth still the most likely outcome for the year ahead, some investors may be questioning the exuberance that points to annualized gains of more than 20 percent.

“We continue to make no secret of our distaste for corporate fundamentals,” Bank of America Corp. strategists led by Michael Contopoulos said in a note Thursday. Despite the rally, total returns in high-yield could be between zero and one percent, they wrote.

High-yield bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- at S&P Global Ratings.

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