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Junk Bonds: Time to Buy?

“Investors weren’t just walking away from junk bond funds last week. They ran”. (Barrons)

And they ran fast. As of last Wednesday, high-yield (junk) bond funds were hit with the largest weekly outflows on record (with investors pulling $484.2 million from ETFs, and $3.4 billion from mutual funds).

And it wasn’t just last week. Investors have been running from high-yield funds for the past four consecutive weeks (it was just a couple of months ago that junk bond funds saw record inflows).

Has the high-yield sell-off created an entry point? Quite possibly. While the spread between high-yield debt and Treasury securities is below its historic norm, it has widened as of late.

And one could argue that fundamentals warrant moving into high-yield bonds (balance sheets are healthy and margins look good).

And looking at a proxy for high-yield debt, SPDR Lehman High Yield Bond ETF (JNK), recent action has left the space is oversold (for the third time in the past three months). And the sell-off has forced the fund into a short-term downtrend (as of last Wednesday, the fund saw a weekly outflow of $245.3 million). But the fund is still in a long-term positive trend, and is still absolutely a long-term buy.


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