Chart Of The Day: Fallen Angles

Noting strong demand for bond ETFs since the start of this year, yesterday we presented the yield curve for major investment grade corporate bond funds, illustrating the size of trade-offs involved between reaching for yield and accepting longer durations. Today we present the same chart but with major high yield, or "junk" bond funds holding debt from corporate issuers. 

Unlike with Investment Grade Corporates or Treasuries, there are no long-duration funds available in the high yield space, since few investors are willing to extend credit to questionable companies for that length of time. The longest duration fund we cover is the VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL).  

ANGL has a duration of 6.2 years, but this fund is a portfolio of bonds that were originally issued as Investment Grade, and subsequently fell into Junk territory. Importantly, however, these "Angels" still enjoy a higher average credit profile than comparable funds. The median credit rating for ANGL is Ba2, two notches higher than the SPDR Bloomberg Barclays High Yield Bond ETF (JNK), at B1.

This explains why despite its longer duration ANGL still offers a lower yield to maturity than JNK. Nonetheless, the market has viewed these favorably in recent years, with ANGL broadly outperforming JNK since inception in 2012 (see chart below).

More more analysis of ANGL visit its Fund Focus page.  


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