December 15, 2015

By Amey Stone

After three days of downdrafts, the high-yield bond sector rose Tuesday.

The two main junk bond exchange traded funds, iShares iBoxx $ High Yield Corporate Bond (HYG) and SPDR Barclays High Yield Bond ETF (JNK), were up 1.7% and 1.3% respectively. They opened higher and then held onto the gains into early afternoon.

“The selling pressure we saw last Thursday and Friday and yesterday has abated,” Art DeGaetano, chief investment officer at Bramshill Investments told Barron’s. The trading — not only in the ETFs, but also on the desks at the big banks — is “firmer and better,” he says. “The year-end tax selling and all the panic is kind of done. Everyone is waiting for the Fed tomorrow.”

Bramshill thinks the sector may trade up again tomorrow if the Federal Reserve announces it is raising interest rates as expected at 2 p.m. ET.

“Once the Fed comes out a little uncertainty is lifted, and we may see some more constructive pricing in risk assets, including high yield as well as equities.”

But he is still cautious on the sector into the first quarter of next year when he expects more volatility around expectations for the Federal Reserve’s rate hike path.

“If I had money to invest in high yield, I would put half to work now and wait on the other half,” says DeGaetano. “I think we will see some better opportunities in first half of next year.”

Meantime, he says investors should keep close watch on default rates and Fed commentary in early 2016.