The Largest Junk Bond ETF Just Experienced Its Largest Outflow In History

Bloomberg reported on Thursday that the largest exchange traded fund that holds junk bond assets is under heavy selling pressure. The iShares iBoxx $ High Yid Corp Bond (ETF) HYG has seen $2.6 billion in outflows over the past four days while short interest in the ETF rose more than 80 percent since mid-April.

Bloomberg Intelligence's Eric Balchunas provided further commentary on the ETF during Friday's "Bloomberg Markets" segment.

Balchunas continued that the outflow of funds is certainly "unusual" as it's the largest outflow of money from the ETF in its history. However, he noted that the ETF is being increasingly used by investors and holds more assets so it is only natural for it to experience these record outflows.

"I refer to this 'hotel HYG' because you have large, gigantic institutions using it as a temporary parking place," he said. "People are using it as they wait for new issuances to come out, then they are leaving it."

Meanwhile, Balchunas stated that large ETFs, such as the SPDR S&P 500 ETF Trust SPY have also seen outflows. This indicates that "hot money" is currently "nervous," especially when considering that ETFs such as SPDR Gold Trust (ETF) GLD and iShares Trust USMV have seen cash inflows.

Finally, he said this kind of activity is "consistent with fear in the market." On the other hand, "violent" outflows out of high yield ETFs "happens all the time" and "not that unusual."