iShares 0-5 Year High Yield Corporate Bond ETFNYSE American: SHYG

The really core and sticky elements of inflation are ticking up, and oil may end up being a false friend. We also still have issues with exposure to credit spreads, considering how low they are historically. With duration making the ETF more sensitive to YTM changes and the propensity for markets to be wishful around Fed policy, we still aren't crazy about SHYG.

SHYG is a moderate duration fixed income ETF, and we believe that it will be a higher for longer environment, which is bearish for longer duration fixed income. We used to complain about the credit spreads being too low, but now we acknowledge reflexivity benefits. However, reflexivity in high yield simply makes the higher for longer case more likely, so there's no angle there, and reflexivity benefits are already priced in.

The iShares 0-5 Year High Yield Corporate Bond ETF has a higher duration than desired for those who believe the inflation battle is not over. The portfolio has a duration risk but is mitigated by a high yield to maturity of 7.78%, although we worry about credit spreads too. We think markets are ahead of themselves and are not considering SHYG for the time being.

Junk debt issuers face refinancing risk into "higher for longer" rates. iShares 0-5 Year High Yield Corporate Bond ETF provides access to high yield with less duration risk. SHYG holds a diversified portfolio of short-term high-yield bonds with predominantly BB and B credit ratings.

The junk bond market is approaching a $785 billion maturity wall, causing concerns for junk-rated companies trying to refinance amid interest rate hikes. The iShares 0-5 Year High Yield Corporate Bond ETF holds short-term junk bonds and may be negatively impacted by the upcoming maturity wall. Junk bonds, including short-term ones, are overpriced and face challenges in refinancing due to high interest rates and potential economic slowdown.