On Thursday, BlackRock announced the launch of the iShares BB Rated Corporate Bond ETF (NYSE: HYBB). The fund will seek to track the investment results of the ICE Bank of America BB US High Yield Constrained Index (HUC1) and is the first ETF to offer this exposure to investors in the United States. 

As of September 30, 2020, BB-rated bonds accounted for 55% of the total U.S. fixed income high yield universe, up from 47% at the end of 2019. The BB universe’s growth has largely been the result of bond downgrades from investment grade to high yield. Reflecting this shift, the ICE BAML High Yield BB index comprises 1,022 bonds, an increase from 830 bonds at the end of 2019.

“Volatility, corporate bond downgrades and investor demand for liquidity are among the trends that have re-shaped the bond market in 2020, said Joshua Penzner, US Head of Institutional iShares Fixed Income ETFs for Blackrock. “The launch of HYBB – the first ETF to capture the BB slice of the market – enables investors to access over 900 individual bonds in one ticker efficiently and is an example of iShares’ continued  focus on meeting the evolving needs of our clients.”  

Expanding the iShares High-Yield Fixed-Income ETF Suite 

HYBB is a market capitalization-weighted fund containing securities rated BB1-BB3 based on an average of Moody’s, S&P, and Fitch, with a 2% issuer cap and pro-rata distribution of any excess weight across remaining issuers. The addition of HYBB brings the total number of U.S. iShares Fixed Income ETFs available to investors to 104, representing $658 billion in AUM. iShares’ total suite of U.S. high-yield fixed-income ETFs increases to 16 with $37.7 billion in AUM and offers investors a wide range of bond exposures, including Broad (HYG, USHY); International (GHYG, HYXU); Factors (HYDB); Emerging markets (EMHY); Maturity-year specific iBonds (IBHA, IBHB, IBHC, IBHD, IBHE); Short term (SHYG); Hedged (HYGH); and Fallen angels (FALN).

Growing Demand for Fixed Income ETFs  

Fixed-income ETFs, which offer an investment in bond portfolios with the exchange tradability of stocks across investment-grade credit, government, high yield, inflation,  mortgage, multi-sector, and municipal asset classes, have been the fastest-growing category in the fixed income sector. Global fixed-income ETF AUM grew 30% in the past twelve months ending June at a record $1.3 trillion. Most of this growth, 84%, came from inflows. During the extreme financial asset volatility in the first half of 2020, fixed income ETFs provided investors with liquidity, continuous price transparency, and lower transaction costs than were available in individual bonds. 

BlackRock’s outlook for the global fixed income ETF landscape is AUM $2 trillion by  2024. Fixed income ETF adoption continues to grow. They have proved themselves critical tools to understand rapidly changing market conditions; help price individual bonds and portfolios; determine absolute and relative value opportunities that underpin allocation decisions; implement decisions rapidly and efficiently; and hedge unwanted risk. 

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