This post is part of a regular series written by ETF Trends editor Tom Lydon, special for CNBC.com. (See below for his buy recommendations.)
There are countless ways to gauge investor sentiment and spot signs of a recovery in the markets — and in exchange traded funds (ETFs). One of the most telling ways is by checking out bond market activity. At the height of market fear, for example, there was a brief period of time in which Treasury bond yields went negative. Investors were paying the government to hold their money, they were so frightened.
A few months later, my, how things have changed.
- Treasury bonds are now on the outs: yields on 30-year bonds have hit a six-month high
- Investors are instead snapping up junk bonds, and the demand led speculative-grade companies to launch $5.5 billion of offers, according to a report in The Wall Street Journal
- The willingness to take on risk has something to do with a loosening of the credit markets, too; the Libor (the cost of borrowing money between banks) fell below 1 percent on Friday; and it marked the eighth consecutive week of declines (Check Libor/Credit Spreads Now)
- As the Libor continues to fall, it’s giving investors confidence that companies can sell debt and finance themselves
Playing the shift in sentiment toward the junk bond market is easier with ETFs, because with a variety of holdings, they help spread out the risk of this market. Two funds that give exposure:
SPDR Barclays Capital High Yield Bond: up 12.9 percent in the last month; yields 14.9 percent
iShares iBoxx High Yield Corporate Bond: up 9.2 percent in the last month; yields 11.6 percent
More Picks from Tom Lydon:
Top ETFs Now:
iShares MSCI Emerging Markets Index
Financial Select Sector SPDR
Direxion Daily Financial Bear 3X Shares
Tom Lydon is the editor of ETF Trends and author of iMoney: Profitable ETF Strategies for Every Investor.