All Over Again

Call me cynic, but it’s hard to see this as a good thing:

„Junk ETFs Draw Most Cash on Record as High-Yield Hunt Speeds Up” (Bloomberg)

Exchange-traded funds for speculative-grade bonds are drawing the biggest inflows on record from investors seeking easier access to higher-yielding assets.

ETFs that track junk-bond indexes have tapped $5.5 billion of investments in the securities this year, according to data from Lipper. That almost quadruples the $1.4 billion recorded during the same period of 2011, which was then the highest since the fund research firm started tracking junk ETF data in 2007.

While exchange-traded funds comprise 2 percent of the $1 trillion in U.S. corporate speculative-grade debt outstanding, they accounted for more than a third of the total $14.8 billion of inflows this year into mutual funds and ETFs that buy junk bonds. With the Federal Reserve pledging to hold its benchmark interest rate near zero until at least late 2014, investors are seeking better returns, said Peter Tchir, founder of New York- based hedge fund TF Market Advisors.

„ETFs are giving people a fair degree of comfort, providing them with daily transparency and the ability to see a trade in and out, and asking for relatively low fees,” Tchir said. The funds allow individual investors to speculate on debt ranked below investment grade without owning the bonds, which is stoking more flows into ETFs.

In fact, it’s looking more and more like 2007 all over again.

Got those crash helmets ready?