BMO High Yield US Corporate Bond Index ETF (ZJK.TO): A Contrarian Anchor in Fixed Income Turbulence

The BMO High Yield US Corporate Bond Index ETF (ZJK.TO) has reaffirmed its position as a yield-driven stalwart in an otherwise volatile fixed income landscape. With its May 2025 dividend of 0.09 CAD set to be distributed on June 3, ZJK offers investors a rare combination of stability and income amid a sea of declining bond ETFs. This article explores why now—amid market pessimism—is the ideal time to position in ZJK, leveraging its contrarian appeal in a risk-off environment.

The Case for Contrarian Fixed Income Exposure

The fixed income sector is experiencing a paradox: while central banks hint at rate cuts, bond ETFs tracking investment-grade (IG) and sovereign debt have slumped. For instance, the BMO Long Corporate Bond Index ETF (ZLC.TO) has dropped -0.92% year-to-date, while the iShares USD High Yield Corporate Bond ETF (XHY.TO) has dipped -0.24% (as of May 2025). Meanwhile, ZJK’s price has held firm, underscoring its resilience. This divergence creates a compelling opportunity to capitalize on misplaced fear.

Why ZJK is an Income Anchor in a Risk-Off World

1. Stable Dividend Discipline: ZJK’s 0.09 CAD monthly dividend—unchanged since September 2023—reflects the underlying strength of its US high-yield corporate bond portfolio. Unlike volatile equities or interest-rate-sensitive government bonds, ZJK’s yield is underpinned by corporate cash flows, making it less susceptible to macroeconomic noise.
2. Undervalued High-Yield Market: Current spreads for US high-yield bonds are near 5-year wides due to recession fears. This creates a “buyers’ market,” as spreads are likely to tighten if the Fed pauses or cuts rates in 2025. ZJK’s exposure to these bonds positions investors to capture both yield and capital appreciation.
3. Contrast with Underperformers:
4. ZMU.TO (BMO Medium-Term US Treasury ETF) and ZCS.TO (BMO Canadian Short-Term Bond ETF)—both tracking low-risk government debt—have underperformed ZJK in 2025. While their stability is appealing in theory, their paltry yields (e.g., ZCS.TO’s 2.8% YTD) pale against ZJK’s ~5.8% annualized yield (as of May 2025).
5. The XHY.TO and ZLC.TO declines highlight broader sector jitters, but ZJK’s focus on US high yield—already discounted for risk—offers better upside.

Tactical Entry: Timing the Cycle

The Fed’s pivot from hawkishness to data dependence has created a “sweet spot” for high-yield bonds. If the Fed halts hikes or cuts rates later this year, ZJK’s portfolio could benefit from two tailwinds:
1. Spread Compression: As investor sentiment improves, the current 6.2% average yield on ZJK’s holdings (vs. 4.5% in 2022) could narrow, boosting prices.
2. Rate Sensitivity: High-yield bonds have shorter duration than government bonds, making them less vulnerable to rate fluctuations—a critical edge over ETFs like ZCS.TO or ZMU.TO.

Risks and Mitigants

• Credit Downgrades: A recession could pressure corporate borrowers. However, ZJK’s index-based approach ensures diversification across 300+ issuers, reducing idiosyncratic risk.
• Liquidity Concerns: High-yield bonds are less liquid than Treasuries, but ZJK’s daily trading volume (~$25M) and institutional backing mitigate this.

Conclusion: Position Now for the Cycle’s Turn

In a market gripped by fear, ZJK.TO stands out as a contrarian play for income-focused investors. Its 0.09 CAD dividend—backed by resilient US corporates—and the likelihood of spread compression make it a rare fixed income asset with both yield and growth potential. With competing ETFs like ZLC.TO and XHY.TO underperforming and government bond yields unattractive, ZJK offers a tactical allocation to weather volatility and profit from the eventual normalization of risk appetite.

Action Item: Allocate 5-10% of fixed income exposure to ZJK.TO ahead of the June 3 dividend payout. The current price dip (if any) offers a discounted entry, with upside potential as macro fears ease and spreads tighten. This is a strategic move to anchor portfolios in an uncertain environment—act before the crowd catches on.