(Bloomberg News) The $28.4 billion Blackrock Inc.-led industry of exchange-traded funds that buy U.S. junk bonds is expanding into global speculative-grade debt as the notes outperform dollar-denominated securities by the most since 2009.
BlackRock, the world's biggest money manager, opened the first ETFs on April 3 that will invest in junk bonds from Europe to Asia after its iShares iBoxx High Yield Corporate Bond Fund in the U.S. grew to more than $14 billion in less than five years. Van Eck Global, the investment firm founded in 1955, opened its International High Yield Bond ETF the same day.
Fund managers are broadening their investments beyond U.S. debt with yields on junk bonds outside the country almost double the average of the past 10 years. Investors poured a record $31.1 billion into speculative-grade debt in the 14 weeks ended April 2, according to EPFR Global data, and a three-month rally in dollar-denominated junk securities is now losing steam.
"There are many fixed-income managers today who are really reaching out to international and global issuers," Darek Wojnar, head of product development and management for BlackRock's iShares, said in a telephone interview. "That's one of the ways to diversify sources of yield."
High-yield bonds sold outside the U.S. returned 10.4 percent in the first quarter, compared with a 5.1 percent gain for junk notes in dollars, according to Bank of America Merrill Lynch index data. That's the biggest three-month outperformance since the period ended July 31, 2009, the data show.
BlackRock's IShares Global ex-USD High Yield Corporate Bond Fund and IShares Emerging Markets High Yield Bond Fund seek to invest in bonds that replicate indexes composed of debt from both developed and emerging countries outside the U.S. The U.S. junk-bond market is about five times the size of the comparable market in Europe, Bank of America Merrill Lynch index data show.
"It is not easy to create a diversified portfolio of European high-yield names," said Jason Rosiak, head of portfolio management at Pacific Asset Management, the Newport Beach, California affiliate of Pacific Life Insurance Co., in an e-mail. The new ETFs "would create a more liquid vehicle for total return or high-yield investors to gain international exposure."
Elsewhere in credit markets, a benchmark gauge of U.S. company debt risk jumped by the most in almost four months amid investor concern that Spain may need international aid, deepening Europe's fiscal crisis. Burger chain Wendy's Co. set the interest rate it will pay on a $1.125 billion loan to refinance debt. Bon-Ton Stores Inc.'s debentures fell the most in almost three months as the retailer said its March same-store sales dropped, missing analyst estimates.
The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses on corporate debt or to speculate on creditworthiness, climbed 4.4 basis points to a mid-price of 97 basis points as of 5:13 p.m. in New York, according to Markit Group Ltd. That's the biggest daily increase since Dec. 8, when the measure surged 6 basis points.
In London, the Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 2.4 to 132.2. The Markit iTraxx Japan index was little changed at 159.5 basis points as of 9:05 a.m. in Tokyo, according to Deutsche Bank AG. The gauge closed yesterday at 158.9, the highest level since March 23, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.