Saba’s Weinstein: ETFs ‘destroy value’ in junk bonds

Hedge funds wary of high-yield bonds; blame ETFs for shrinking liquidity premium

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Junk bond yields have dropped sharply over the past year

Exchange-traded funds (ETFs) and other passive investment products have eroded the liquidity premium in high-yield bonds, hedge fund managers say.

“Money is pouring in, making spreads tighter,” said Brett Jefferson, founder and president of Hildene Capital Management, a hedge fund specialising in structured credit. “We assume this will end poorly.”

Jefferson was speaking on a panel at the SALT conference in Las Vegas on May 17.

Junk bond yields have dropped from around 10% in early 2016 to be