Reasons To Stick With Junk Bond ETFs

The obvious reason would be the iShares iBoxx $ High Yield Corporate Bond ETF HYG, the largest high-yield corporate bond exchange traded fund, sports a 30-day SEC yield of 5.64 percent. That's more than triple the current yield on 10-year Treasurys.

So with U.S. interest rates at historic lows and trillions of dollars of negative-yielding sovereign debt throughout the developed world, it's easy to see why investors would be drawn to high-yield bonds.

Still, there are critics who don't want to believe HYG and rival junk bond ETFs can deliver ample liquidity under trying circumstance. Durable liquidity in high-yield bond ETFs is vital because more and more professional traders are turning to these products to skirt the dubious liquidity of individual high-yield bonds.

When one gets down to it, these days, it's increasingly difficult to find assets yielding 5 percent, more or even anything close. Hence, investors' renewed enthusiasm for HYG and rival junk bond ETFs.

“The case for high yield rests largely on the fact that it remains one of the few asset classes left that can offer a greater than 5% yield. Spreads (the difference between the yield of a high yield bond and a U.S. Treasury) have come in considerably since the winter lows. But relative to Treasuries, high yield still provides a spread of around 540 basis points (5.4%), close to the long-term average (source: Bloomberg),” according to a recent BlackRock note.

However, with HYG up nearly 11 percent year-to-date and having hauled in $882.4 million in new assets, a case can be made the easy money has been made. BlackRock notes the preferred time to embrace junk bonds is when spreads are wide. That isn't the case at the moment.

“In short, valuations can be described as reasonable but not cheap. In that case, it is important to consider the economic outlook. More than most other segments of the fixed income market, high yield typically performs better when the economic outlook is improving,” said the asset manager.

Importantly, HYG has been steady during oil's recent decline. The high-yield ETF is up 0.42 percent over the past month while the United States Oil Fund USO, which tracks West Texas Intermediate futures, is off 8.8 percent.

Energy issues account for nearly 13 percent of HYG's weight, the ETF's third-largest industry allocation behind communications and consumer staples.