Van Eck Files Plans For Hedged Junk Bond ETF


Van Eck Global, the parent company of Market Vectors, has filed plans with the Securities and Exchange Commission to possibly introduce the Market Vectors High Yield/Treasury Bond ETF. That ETF would use U.S. Treasuries as a hedge against the interest rate sensitivity inherent in high-yield bonds. News of the new ETF was reported by Index Universe earlier Monday.

The ETF will track the Market Vectors High-Yield/Treasury Bond Index. The Index includes bonds issued by both U.S. and non-U.S. issuers. The country of risk of qualifying issuers must be a member of the Group of Ten, a Western European nation or a territory of the United States, according to the filing.

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Typically, junk bonds have lower durations than Treasuries or high-grade corporates because they have shorter maturities. Many high-yield bonds are issued with maturities of a decade or less and many are called in just half that time. That is to say high-yield bonds are more sensitive to credit risk than interest rate risk.

As the Van Eck filing notes, "Bonds are also subject to interest rate risk. Interest rate risk refers to fluctuations in the value of a bond resulting from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most bonds go down. When the general level of interest rates goes down, the prices of most bonds go up."

The filing did not include a ticker or expense ratio for the Market Vectors High-Yield/Treasury Bond ETF.

Market Vectors already counts three high-yield bond funds among its 50-ETF lineup. The firm introduced the Market Vectors Fallen Angel High Yield Bond ETF (NYSE:ANGL), the Market Vectors Emerging Markets High Yield Bond ETF (NYSE:HYEM) and the Market Vectors International High Yield Bond ETF (NYSE:IHY) this year. Combined, those new ETFs have over $210 million in assets under management.

For more on junk bond ETFs, click here.

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