By Davide Barbuscia

NEW YORK, (Reuters) – The stock price for a U.S. major junk bond exchange traded funds (ETFs) dropped to their lowest level in more than two years as investors feared the economic impact of a hawkish Federal Reserve.

BlackRock’s iShares iBoxx $ High Yield Corporate Bond ETF fell 0.4% to trade $78.23 a share on Monday, Refinitiv data showed – the lowest price since April 2020.

The Yield Spread on the ICE(NYSE:) BofA U.S. High Yield Index, a benchmark used in junk bond markets, rose to 405bps on Monday. It was 393 bps lower than last week and is now at 405 bps.

An indication that financial markets are risk-averse is the widening spread of yields from junk bonds over Treasuries

U.S. credit markets enjoyed some relief in March. However, the relief was temporary as the uncertainty surrounding the U.S. central banking’s ability for an economic soft landing continues to weigh down risk assets.

Expect the Fed to announce this week a rate increase of 50 basis points and the launch quantitative tightening (QT), which is the reverse of the bond-buying program that was intended to support the economy in the pandemic.

U.S. Treasuries have seen a decline this year due to concerns about its tightening of monetary policy. This has also affected riskier assets like U.S. corporate bond.

Goldman Sachs (NYSE) stated in a Tuesday research note that “Continued Fed hawkishness – both an increasing embrace for 50bp moves, and renewed focus on QT – have helped push real yields to new heights.”

It stated that “this mix ultimately has led to pressure on credit and equities, which was exacerbated with worries about growth risks.”

The U.S. benchmark hit 3% Monday for the first-time since December 2018 and hovered at that level for Tuesday. On Tuesday, the Fed was due to announce an aggressive increase in interest rates to control high inflation.

Spreads, which are premium investors’ demands to have riskier Treasuries over the more risky debt, were widened on Monday for investment-grade corporate credit but to a smaller extent.

The ICE BOFA U.S. corporate Index tracks dollars-denominated corporate investment grade-rated debt and rose from 139 bps to 141 bps last Monday.