A New Way To Be Bearish On Junk Bonds

Direxion, the second-largest issuer of inverse and leveraged exchange traded funds, is introducing an inverse, double-leveraged junk bond ETF. The Direxion Daily High Yield Bear 2X Shares HYDD comes to market today.

The Direxion Daily High Yield Bear 2X Shares will attempt to deliver twice the daily inverse performance of the Barclays U.S. High Yield Very Liquid Index.

That index "is a component of the US Corporate High Yield Index that is designed to track a more liquid component of the USD-denominated, high yield, fixed-rate corporate bond market. The US High Yield VLI uses the same eligibility criteria as the US Corporate High Yield Index, but includes only the three largest bonds from each issuer that have a minimum amount outstanding of USD500mn and less than five years from issue date. The index also limits the exposure of each issuer to 2% of the total market value and redistributes any excess market value index-wide on a pro rata basis," according to Barclays.

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More than 80 percent of the issues held in that index are rated Ba or B on the Moody's ratings scale.

HYDD will compete with the ProShares Short High Yield SJB, the established bearish junk bond ETF on the market. However, SJB isn't a leveraged product.

HYDD is the second new ETF from Direxion to debut in the past week. Last week, the firm rolled out the Direxion Daily S&P 500 Bear 1X Shares SPDN, an inverse though not leveraged play on the S&P 500.

So if SPDN behaves intended, on days when the S&P 500 falls 1 percent, the new Direxion ETF should rise by that amount.