ETF That Protects Against Rising Rates and Also Against Market Plunge

Junk bonds keep delivering less of an incentive for yield seekers.

The average income payout on bonds rated below BBB-investment grade has sunk to less than 6%.

US High Yield BB Effective Yield Chart

US High Yield BB Effective Yield data by YCharts

And during the past 6 months, the 10-year Treasury yield has trended higher while junk yields have slid, narrowing the spread junk investors are being paid to take on the volatility of the sector.

US High Yield BB Effective Yield Chart

US High Yield BB Effective Yield data by YCharts

Granted, with the latest round of economic indicators suggesting we’ve got some healthy green shoots growing, the risk of junk is mitigated as issuers are less likely to hit a business slowdown that would impact their ability to stay current on payments.

But the fact that the economy is flexing a bit more growth muscle raises the specter that we’re getting significantly closer to interest rates rising off their historic-and Fed manipulated-lows.

In that environment, a subset of the junk pile stands out as the potentially better way to dabble in junk going forward. Senior loans are floating rate debt made by big banks to companies with below-investment grade credit ratings. That floating-rate structure means that when rates rise, the interest payouts on these debts will also increase.

Right now the PowerShares S&P Senior Loan ETF (BKLN) delivers a much lower yield than the SPDR Barclays High Yield ETF (JNK).

BKLN Dividend Yield Chart

BKLN Dividend Yield data by YCharts

Granted that’s a big current income differential, but going forward the floating-rate senior loans gives you a rare way in the bond world to profit when rates rise.

But keep in mind that junk bonds are more equity-like than bond-like. When trouble hits, they crater.

JNK Total Return Price Chart

JNK Total Return Price data by YCharts

That Vanguard ETF invests in high-quality bonds.

If you’re essentially taking on stock-like volatility, you might want to take a look at stocks with competitive yields. For instance, unloved Intel (INTC) has a current 4.2% dividend yield and management has boosted the payout more than 60% over the past five years. Yes, you’re essentially making a wager that Intel will get its mojo back after misplaying the need for low-energy chips for mobile devices. But an 11 forward PE ratio is more than 30% lower than the market average. So it’s not as if you’re paying up for that nice dividend yield (and dividend growth.)

You can use YChart Stock Screener to rank stocks by dividend yield, and then dig down from there on their underlying dividend growth history and fundamentals.

Carla Fried, a senior contributing editor at, has covered investing for more than 25 years. Her work appears in The New York Times, and Money Magazine. She can be reached at



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