Investing

Economic Panic Also Destroys Values in High-Yield Bond Funds and ETFs

Jon C. Ogg

Sometimes bad news only begets more bad news, and how it started and where to place the ultimate blame might not matter at the end of the day. When stock market turmoil and economic turmoil coincide into a perfect storm, it turns out that the high-yield sector in corporate bonds, municipal bonds and emerging market bonds tend to get gutted. Most investors on most days operate under the investing principle that bonds are supposed to be safe havens with steady payments. That may be true for U.S. Treasury bonds and other safe-haven sovereign debt, but it’s not the case when it pertains to the high-yield debt sector.

It was just in February of 2020 that the Dow Jones industrial average, S&P 500 and Nasdaq were all bursting to all-time highs. It was as if the coronavirus in China was going to be contained and that trade between the United States and China would resume. That was then. Now the stock market has landed itself in a bear market faster than the investing community could have thought possible.

24/7 Wall St. has tracked the absolute carnage that has hit the high-yield bond sector in March of 2020, and the pain is far and wide. We have shown how far they have come down from their highs in both the ETFs and in closed-end funds, and in the closed-end funds that have already set their dividends we have shown the implied yield on top of their performance.

Some of these funds in fact may be fine over time, but there are rules that come into play around discounts and leverage in certain funds that can interrupt dividend payments in certain circumstances. This has been a time when investors have thrown out the baby with the bathwater in the panic.

Invesco High Yield Equity Dividend Achievers ETF (NYSE: PEY) was last seen down 7.1%at $13.47, compared with a recent high of $19.34.

iShares iBoxx $ High Yield Corporate Bond ETF (NYSE: HYG) was almost 5% lower at $76.98, down from a recent high of $88.53.

iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSE: EMB) was down 4.5% at $97.72 on Thursday, compared with from a recent high of $117.20.

Goldman Sachs Access High Yield Corporate Bond ETF (NYSE: GHYB) traded 3.9% lower to $44.31, down from a recent high of $50.17.

SPDR Bloomberg Barclays High Yield Bond ETF (NYSE: JNK) was down over 4% at $96.00 from a recent high of $110.33.

VanEck Vectors High-Yield Municipal Index ETF (NYSE: HYD) was down 10.5% at $52.10, versus a recent high of $66.34.

DoubleLine Income Solutions Fund (NYSE: DSL) was down 9.2% at $14.78 on Thursday, from a recent high of $21.14, with a current yield of 12.2%.

Nuveen Credit Opportunities 2022 Target Term Fund (NYSE: JCO) traded down 9.6% at $8.48, with a yield of almost 6.6%.

Nuveen Municipal High Income Opportunity Fund (NYSE: NMZ) was down 10.7% at $11.77, and that compares with a recent high of $15.00. Its current dividend yield would be right at 6.0%.

PGIM Global High Yield Fund Inc. (NYSE: GHY) was 10.2% lower to $11.56 on Thursday, down from a recent high of $15.39.

PIMCO High Income Fund (NYSE: PHK) was down 11.1% at $5.24 on Thursday. Its recent high was $9.09, and it would now have a 14% yield.

PIMCO Municipal Income Fund III (NYSE: PMX) was down 11% at $10.16 on Thursday, down from a high of $12.96. Its current yield would be about 5.2%.