As can be seen in the chart here, price changes in the HYG, JNK, and PHB ETFs are far more volatile than those in the SNLN and BKLN ETFs.Price performance: High yield bond ETFs versus leveraged loan bond ETFs

Although both high yield bonds and leveraged loans are issued by non-investment grade institutions, investors differentiate between the two while investing based on the nature of their returns. Since bonds carry fixed interest rates, their payout remains the same, even in a rising interest rate environment. For this reason, while high yield bonds do quote a higher nominal return, their real return is much lower in inflationary conditions.

On the other hand, leveraged loans and leveraged loan ETF investors do not suffer in terms of real returns as their payout is pegged to LIBOR, that is, if LIBOR increases, their payout increases, and vice versa. They also have some surety in terms of their investment being backed by the issuing company’s assets. Consequently, the issuer company also does not need to pay a premium as high as in the case of high yield bonds to sell these securities. So, loans have lower quoted yields than high yield bonds.

The investors in both cases, react in a similar way to interest rate changes, but the magnitude of change may differ. Since the real returns of high yield bond ETF investors are affected more strongly by interest rate volatility than leveraged loan ETF investors, whose investment is backed by some surety, high yield ETF investors react more strongly to market interest rate changes, as is evident from the chart above.

Latest articles

Monster Beverage (MNST) stock was down 1.6% as of 2:47 PM EDT on March 20.

Earlier today, the second-largest US automaker by 2018 sales volume, Ford Motor Company (F), revealed its plan to invest $850 million in its Flat Rock assembly plant through 2023.

Mizuho downgraded Yum! Brands (YUM) from “neutral” to “underperform” while keeping its 12-month price unchanged at $84, which represents a fall of 15.4% from its March 19 closing price of $99.20.

20 Mar

Why Verizon Sought to Lead 5G Rollout

WRITTEN BY Rachel Gunter

According to Verizon, its mobile 5G plans will cost $10 more than its current 4G plans.

As of March 19, Dunkin’ Brands (DNKN) was trading at $71.55, which represents a rise of 3.9% since the announcement of its fourth-quarter earnings on February 7.

Suncor Energy's shareholder returns have grown consistently over the past few years. The company hasn't forgotten its commitment to growth.