“From the market’s bottom on Dec. 12, 2008, U.S. junk bonds have produced a total return of 88%, using the Merrill Lynch High-Yield Master II index. That beats even the extraordinary rally in U.S. stocks from their March 9, 2009, low (+75%). In both cases, the magnitude of the gains should be a red flag to all prudent investors. The rally is a product of investors’ ravenous appetite for high-yield bond issues, and another sign that the Fed’s zero-interest-rate policy is distorting the market’s risk-pricing function. In March, global issuance of junk bonds reached a record $36.7 billion and the tally for April was the second-highest on record ($32.2 billion). In other words, investors are lending record amounts of money to the riskiest group of companies less than three years after the start of the greatest credit crisis in history, a crisis which will have knock-on effects for years to come, some of which may not yet be clearly understood,” Alex Dumortier Reports From The Money Times.

Dumortier goes on to say, “The desperation to eke out a return better than that on funds stuffed into a money market mattress can push investors to forget the very basis of sound investing. As Gluskin Sheff strategist David Rosenberg took the trouble to remind us recently, “the operative strategy … is to be paid to take on risk as opposed to paying for taking on risk.” One thing should be quite clear: U.S. high-yield investors aren’t getting paid right now, receiving just 4.5 percentage points in extra yield above the rate on 10-year U.S. Treasury bonds. That is three-quarters of a percentage point below the historical average, which is clearly inadequate compensation in an environment characterized by risks that many professional investors have never witnessed in their lifetimes, let alone during their investing careers.”

“The ultimate outcome is predictable. Speaking yesterday at a Hong Kong conference on distressed investing, New York University finance professor Edward Altman said of the high-yield market: “I’m concerned it has come back too fast and too furious. There will be a correction.” Altman developed the Altman Z-Score, a measure of bankruptcy risk based on accounting and market data.  Now is clearly not the time for investors to purchase the SPDR Barclays Capital High Yield Bond ETF (NYSE: JNK) or the iShares iBoxx High Yield Corporate bond ETF, but those aren’t the only securities they should avoid. Back in August 2009, I highlighted the “junk rally” in stocks, in which the shares of the lowest-quality companies were outperforming those of higher-quality names,” Dumortier Reports.

See more details to the article: HERE

We have put together some details on the SPDR Barclays Capital High Yield Bond ETF (NYSE: JNK) and the iShares iBoxx High Yield Corporate bond ETF (NYSE:HYG) below:

SPDR Barclays Capital High Yield Bond (NYSE:JNK)

The investment seeks results that correspond generally to the price and yield performance, before fees and expenses, of the Barclays Capital High Yield Very Liquid index. The fund normally invests at least 80% of total assets in securities that comprise its benchmark index. It may also invest its other assets in securities not included in its benchmark index. The fund is nondiversified.

iShares iBoxx $ High Yield Corporate Bd (NYSE: HYG)

The investment seeks the results that correspond generally to the price and yield performance, before fees and expenses, of the iBoxx $ Liquid High Yield index. The fund invests at least 90% of assets in securities that comprise the index. However, it may invest up to 20% of assets in certain futures, options and swap contracts, cash and cash equivalents, and in bonds not included within the index. The index is a rules-based index consisting of the most liquid and tradable U.S. dollar-denominated, high-yield corporate bonds for sale in the U.S. The fund is nondiversified.

JNK, NYSE:HYG