HYG Inflows Join the Post-Election Rally

The risk-on trade that swept across financial markets Wednesday following Donald Trump’s surprisingly decisive victory over Kamala Harris included an uncharacteristic bet on high yield bonds.

The $14.4 billion iShares iBoxx USD High Yield Corporate Bond ETF (HYG) received nearly $800 million on Wednesday, second only to the SPDR S&P 500 ETF (SPY). HYG also had a $1 billion inflow spike on Oct. 31.

The gains by HYG, which tracks an index of U.S. high-yield corporate debt, represents a shift from its 2024 trend–the fund has shed more than $5 billion in assets year-to-date–and comes even as its share price rose modestly. In a statement, BlackRock Global Co-Head of iShares Fixed Income ETFs Steve Laipply, attributed the jump to investors' efforts to adapt to a changing market environment.

“This is reflective of how investors are using HYG and other iShares bond ETFs as exposure and asset allocation tools to nimbly and efficiently express views at scale as market conditions unfold in real time,” Laipply said.

According to the etf.com Pulse Tool, SPY generated $2.4 billion in inflows, while the ETF with the third-most one-day inflows was another S&P 500 index fund, the Vanguard S&P 500 ETF (VOO), which received $637 million. But unlike SPY and VOO, which rallied by more than 2% on Wednesday, HYG was essentially flat.

Year to date, the contrast is equally stark with SPY and VOO up more than 25%, compared to a 2% gain for HYG.

Changing Economic Outlook Under Trump

Kent Thune, Research Lead at etf.com, said the flows might be partially due to a changing economic outlook under a Trump presidency.

“With no recession in sight, the default risk is much lower, and the yields beat money markets,” he said. “If there were a higher risk of recession, I'd avoid them, but Trump's tax plans and deregulatory stance bode well for corporate America.”

In the fixed income space, high yield bonds are often considered proxies for equities because of their risk and performance characteristics, which might explain some of the sudden appeal, according to Paul Schatz, president of Heritage Capital.

“It’s unusual, especially when the asset class hasn’t really done anything in months,” he said.

Schatz summed up the Wednesday market rally as “all based on the perception and anticipation of strong economic growth from lower regulation and what will likely be a stimulative new tax package for 2026 and beyond.”

“Junk bonds are the least credit worthy with the highest risk and reward in fixed income,” he added. “They feel every ripple in the economy, but investors were and are positioning for economic acceleration.”

Nicholas Codola, senior portfolio manager at Brinker Capital Investments, sees a similar justification for the rush to high yield debt.

“With the Trump victory and a potential Republican sweep, I think markets took off the table all the corporate tax rate increases the Harris campaign was bandying about,” he said. “We saw small-caps and mid-caps outperform which tend to be more leveraged than large-caps.”