First Trust has launched on Nasdaq an actively managed exchange-traded fund applying the long-short strategy to corporate and U.S. government debt. The First Trust High Yield Long/Short ETF puts 130% of assets into long fixed-income positions, including high-yield bonds, bank loans and convertible securities. The ETF takes short positions on U.S. Treasurys and a mix of investment-grade and high-yield corporate debt.
PIMCO introduced a bond mutual fund, the PIMCO Credit Absolute Return Fund, which does not attempt to meet or exceed any bond index. The fund can invest in a wide range of fixed income securities, including high-yield and investment-grade debt, convertible securities, municipal bonds, emerging market debt, credit default swaps and other derivatives.
After tightening through much of the year, spreads over Treasurys for U.S. investment-grade and high-yield corporate bonds have reversed course, widening to about where they stood in January. For the first time in 2011, investment-grade and high-yield markets delivered negative excess returns compared with Treasurys.
Buyers of European high-yield bonds are signaling their confidence that Greece will make it through its sovereign-debt problem. This year, Europe's high-yield bonds have brought a 2.26% return, according to Bank of America Merrill Lynch. Meanwhile, U.S. high-yield corporate debt has given investors a 0.36% loss. "Greece is seen as more of a concern for the banks and investment-grade than for high yield," said Martin Fridson, CEO of Fridson Investment Advisors.
There have been just 83 high-yield bond deals this year, and investment-grade bond deals are off 25%. Deals that are getting done are featuring problematic returns. Amid stock market turmoil, some experts say the relative silence in the debt market may be the most telling sign of the troubled economy.