Short-Term High-Yield Fund Getting Hit

On a daily basis, we look through ETFs that are trading at premiums and discounts to their Net Asset Value.

Several times over the years, we've looked at these disconnects as short-term opportunities. It's not unusual for closed-end funds to trade several percentage points away from the value of their underlying securities, but it is for exchange-traded funds because of their structure and opportunities for arbitrage.

Most days, there isn't anything outstanding. If there is a fund that trades away from its underlying value, it is usually minor.

One standout today is the Pimco 0-5 Year High Yield Corporate Bond fund (HYS). As the name implies, it holds short-term high-yield debt.

And that is NOT something traders are wanting to hold at the moment.

The discount on the fund just dropped to -0.84%. That doesn't sound like much, but it's among the largest in the fund's history.

The last two times it traded at such a distressed price relative to its holdings, the fund rebounded strongly over the next month. The time prior to that, it jumped over the next couple of days then plateaued before suffering another plunge to its ultimate low.

ETFs are coming under scrutiny for holding illiquid securities that may be hard to price, and that's likely part of the reason for this discount. But it looks to be reaching panic proportions in the short-term.