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| BondsOnline.com: instant access to and extensive coverage of over 3.5 million stocks, bonds, indexes and other securities covering major and emerging markets and exchanges across the globe. |
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| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| More |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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High-Yield ETFs' Love-Hate Relationship With Investors |
WSJ.com, December 14, 2009
Exchange-traded funds have given individual investors a honeymoon in the high-yield market. Over time, it could become a love-hate relationship.
Following a disastrous 2008, high-yield bonds have outperformed virtually every asset class, with the BarCap U.S. Corporate High Yield index up 55% so far this year. While high-yield bonds trade thinly, ETFs such as iBoxx $ High Yield Corporate Bond Fund and SPDR Barclays Capital High Yield Bond ETF provide a way to own them through a liquid vehicle. Morningstar says high-yield ETFs have tripled in size since the beginning of the year to $7.3 billion, boosted by the market rally and strong inflows
But investors beware: The high-yield boom has packed premiums onto ETFs that may not last. Inflows to high-yield ETFs have been virtually nonstop in the past few years. In order for new units to be created, third parties such as investment banks purchase the underlying bonds in the high-yield market, where transaction costs are high. But such banks will create units to sell to ETF managers only if it's profitable, or when units are worth more than the cost of the bonds. When the high-yield market was nearly frozen in December 2008, high-yield ETFs traded at premiums of more than 10%, compared with about 1% in today's healthier market.
What if inflows switch to outflows? As ETFs mature, marginal investor demand will likely decline, especially if the high-yield market falters. Just as investment banks buy bonds to create units, they sell bonds after redeeming units. If the bond market became illiquid again, trading costs would be steep. That could pressure ETF prices down to discounts before investment banks are willing to purchase and redeem units.
High-yield ETFs also struggle to keep up with benchmark bond indexes. That's because they sometimes trade bonds that are dropped or added to indexes, incurring transaction costs. Some index components that are hard to find may be left out of ETFs.
Even so, high-yield ETFs offer better liquidity than investors likely can find elsewhere. When high-yield bond markets came to a standstill last year, the ETF market remained active and deep. Investors should just remember such perks don't come for free.
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| Stuff to look at |
Yield and Income Newsletter: A must have for income investors. subscribe NOW
S&P Commentary and Newsletters: S&P
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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