Where There's Yield, There's Risk

A similar situation, but not as extreme, is evident with the iShares iBoxx $ Investment Grade Corporate Bond Fund(LQD Quote), which has an NAV of 96 and trades around $100 to yield 6%. This ETF is also invested in U.S. corporate bonds. It differs from HYG in that it has a 30% exposure to banks and 10% to financial services -- the worst-performing sectors. Unless you want to run outside and jump up and down, yelling "the recession is over," those industries are fraught with danger. So why the premium?

There may be some legitimate reasons for these significant premiums to NAV. Investors may be willing to pay extra for diversified exposure to credits, rather than putting all their faith in individual issues. Or maybe they thought some covenants on funds' individual securities were violated, only to realize the government's assorted bailouts came to the rescue.

Maybe somebody wants you to believe the worst is behind us, so he can put in place a strategy that leaves the unwary buyer of these ETFs holding the bag. Seems to be a lot of that going around lately.