The U.S. junk bonds soared the most on Apr 9 since 1998 following the Fed’s first-ever foray into the junk-rated corporate bond market. This is especially true as the central bank will purchase non-investment grade corporate bonds and high-yield exchange-traded funds. The move comes as part of the new $2.3-trillion stimulus in new loans amid the coronavirus crisis.

The Fed will buy the bonds of “fallen angel” companies or companies that get downgraded from investment grade to junk. The companies that are rated investment-grade as of Mar 22 and subsequently downgraded to a rating of at least BB- or three levels into high-yield will qualify for the program. For this, the Fed is essentially opening up its balance sheet to potentially hundreds of billions of dollars worth of notes that are expected to fall into speculative grade in the coming months as the impact of the pandemic hits corporate cash flows (read: Fed Goes the Extra Mile: 6 ETF Areas to Win).

Over the past month, the credit rating agencies have issued a slew of downgrades on corporate bonds amid coronavirus-led economic slowdown coupled with the worst oil rout in decades. S&P and Moody’s have been lowering credit grades at the fastest pace in the more than a decade. Per the CreditSights research firm, more than $92 billion of bonds were downgraded to high yield from investment grade in March alone.

Amid such a bleak backdrop, buying junk bonds will keep credit flowing and support the V-shaped recovery as solvency pressure on smaller businesses has been eased somewhat. The central bank can also buy ETFs that track speculative-grade debt. Overall, the programs will support as much as $850 billion in credit.

Given this, investors should tap the space with the following junk bond ETFs, which gained maximum on Apr 9 with the rally in bond price (see: all the High-Yield/Junk Bond ETFs):

High Yield ETF — Up 9.5%

This actively managed fund seeks to generate high current income with a secondary goal of capital appreciation. It selects a focused portfolio, largely of high-yield corporate debt securities that via their coupons, generate a tangible income stream. It holds 183 bonds in its basket and charges 1.25% in annual fees. The ETF has AUM of $103.3 million and trades in average daily volume of around 27,000 shares. It modified duration of 2.48 years and yields 8.85% in annual dividends.

Invesco BulletShares 2026 High Yield Corporate Bond ETF (BSJQ Quick QuoteBSJQ - Free Report) — Up 7.4%

This fund tracks the Nasdaq BulletShares USD High Yield Corporate Bond 2026 Index, which measures the performance of a portfolio of US dollar-denominated, high-yield corporate bonds with effective maturities in 2026. It holds 139 bonds with modified duration of 4.73 years and weighted average life of 5.55 years. The ETF accumulated $52.5 million in its asset base while trades in volume of 43,000 shares a day on average.

iShares iBonds 2025 Term High Yield and Income ETF (IBHE Quick QuoteIBHE - Free Report) — Up 7.1%

This product offers exposure to a diversified universe of high yield and BBB-rated corporate bonds maturing between January 1, 2025 and December 15, 2025 by tracking the Bloomberg Barclays 2025 Term High Yield and Income Index. It holds 245 securities in its basket with effective duration and average maturity of 3.40 years and 3.98 years, respectively. The ETF has amassed $24.6 million in its asset base within less than a year and trades in lower volume of 15,000 shares a day on average. It charges 35 bps in annual fees and has an annual dividend yield of 5.6% (read: 6 Overlooked High-Yielding ETFs in Focus Post Fed Minutes).

FlexShares High Yield Value-Scored Bond Index Fund (HYGV Quick QuoteHYGV - Free Report) — Up 7%

This fund seeks income diversification while focusing on value and quality issuers. It follows the Northern Trust High Yield Value-Scored US Corporate Bond Index, charging investors 37 bps in annual fees. The product holds 597 bonds in its basket with effective duration of 4.49 years and average maturity of 7.52 years. It amassed $140.2 million in its asset base and trades in average daily volume of more than 45,000 shares. The ETF has 8.01% in annual dividend yield.

SPDR Barclays High Yield Bond ETF JNK — Up 6.7%

This fund tracks the Bloomberg Barclays High Yield Very Liquid Index and seeks to provide a diversified exposure to US dollar-denominated high-yield corporate bonds with above-average liquidity. With AUM of 8.7 billion and average daily volume of 7.5 million, it holds a broad basket of 989 bonds. The ETF has average maturity of 5.93 years and adjusted duration of 3.73 years. It yields 5.76% in annual dividends.

iShares iBoxx $ High Yield Corporate Bond ETF (HYG Quick QuoteHYG - Free Report) — Up 6.5%

This ETF offers exposure to a broad range of U.S. high-yield corporate bonds by tracking the Markit iBoxx USD Liquid High Yield Index. Holding 1,008 securities, effective duration and average maturity come in at 3.71 and 4.45 years, respectively. HYG is one of the most widely used high-yield bond ETFs with AUM of $15.7 billion and average daily volume of 29.1 million shares. It charges 49 bps in annual fees and sports a divided yield of 5.31% (read: Most Actively Traded ETFs Over the Past 20 Days).

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