The markets are in a shift right now, with everyone who’s investing for the long-term searching for one thing and one thing only: yield. Be it retail or institutional, finding decent returns has been quite the challenge.
Short-term U.S. Treasurys yields have gone negative on and off as investors seek a place to store their money and seek safeguards against cash. Seeing as how money-markets, savings accounts, CDs and other instruments don’t offer enough return or protection, there has been a flight to Treasuries in terms of capital preservation.
Those looking to generate returns rather than save their dollars have bailed on Europe and some hedge funds. European debt offers high yields but poses entirely too much default risk as the situation with Greece, Spain and other nations gets kicked down the road. Hedge funds with large fees have had lackluster performance in some areas, which led to the biggest set of capital outflow since July 2009, totaling $15.2 billion in January according to TrimTabs. Hedge funds on average returned 3.2% in January, underperforming the S&P 500.
That has left a void which has begun to fill itself with high-yield corporate debt. Investors find so-called junk bonds attractive due to their high yields and improvements with the U.S. economy. Even more importantly has been the advent of exchange-traded products (ETPs) with bonds acting as the underlying. The deep liquidity that ETFs like JNK and HYC offer make them attractive products to those without the funds or experience vis-à-vis the fixed-income market.