This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Winning Returns From Short-Term Junk Bonds

NEW YORK ( TheStreet ) -- Concerned about rocky markets, investors have been dumping intermediate-term bonds and shifting to short-term issues. Short-term bonds tend to be more resilient when interest rates rise. The flows have been particularly notable among high-yield funds, which hold bonds that are rated below-investment grade.

While investors have withdrawn $3.3 billion from the intermediate-term SPDR Barclays High Yield Bond (JNK) this year, SPDR Barclays Short Term High Yield Bond (SJNK) recorded inflows of $1.6 billion, and Pimco 0-5 Year High Yield Corporate Bond (HYS) attracted $2.1 billion, according to IndexUniverse.com. Strong returns have attracted the cash. For the year, SPDR Barclays Short Term returned 3.5%, compared to 1.8% for SPDR's intermediate term exchange-traded fund, according to Morningstar. In comparison, the Barclays Capital U.S. Aggregate index lost 3.2%.

For investors seeking to diversify fixed-income portfolios, the short-term high-yield funds can be intriguing choices. "The short-term ETF gives you an attractive yield with less volatility than you get with longer bonds," says David Mazza, head of ETF investment strategy for State Street Global Advisors, which operates the SPDR funds.

SPDR Barclays Short Term currently yields 4.5%, compared to a yield of 5.9% for the intermediate-term SPDR high-yield ETF. In comparison, iShares Core Total US Bond Market (AGG), which tracks the Barclays Aggregate, yields 2.5%.

Make no mistake, high-yield bonds of all kinds can suffer sizable losses in downturns. During the turmoil of 2008, the average high-yield mutual fund lost 26.4%, and short-term issues also suffered big losses. But below-investment grade bonds can be appealing because they can deliver solid long-term returns. During the past five years, the SPDR intermediate high-yield ETF returned 10.7% annually, compared to 4.6% for the Barclays Aggregate.

The most important reason to consider high-yield funds is they can help to diversify portfolios, sometimes rising when most bonds are falling. When rates climb, Treasuries and other high-grade bonds tend to fall as investors bid down existing bonds and search for new issues with higher yields. Rising yields can also hurt high-yield bonds somewhat because their income becomes less competitive. But high-yield bonds can appreciate during times when a growing economy is pushing up rates. In such periods, investors tend to bid up high yield prices because default risks are lower.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,122.01 +15.31 0.09%
S&P 500 2,000.12 +0.10 0.00%
NASDAQ 4,569.6210 -1.0160 -0.02%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs