Access the “Goldilocks” of High Yield Bonds Through XB | ETF Trends

While 2022 has been a historically bad year for bond markets, U.S. high yield bonds told a different story. So-called junk bonds outperformed most fixed income sectors, with significant performance dispersion across industry sectors and credit rating categories.

In particular, single-B high yield fixed income indexes may offer the opportunity for potential outperformance going forward. In an appearance on CNBC’s “Market Alert,” BondBloxx Investment Management co-founder Joanna Gallegos described single-Bs as “the Goldilocks of high yield,” since they’re “less rate-sensitive than double-Bs and … less idiosyncratic risk than triple-Cs.”

According to BondBloxx, because they have shorter duration, single-B high yield bond indexes have historically lower interest rate sensitivity than double-B high yield bond indexes. Plus, single-Bs have stronger credit profiles and lower default risk than triple-C high yield bond indexes and currently offer higher yield than broad high yield bond indexes.

As investors reposition their fixed income portfolios, single-B high yield bonds may offer the opportunity for potential outperformance going forward. Those seeking exposure to these high yield fixed income securities may want to consider the BondBloxx B Rated USD High Yield Corporate Bond ETF (NYSE Arca: XB), which seeks to invest in bonds rated B1 through B3.

XB is one of three ratings-specific high yield bond ETFs that BondBloxx launched in May.

Launched in October of 2021 to provide precision ETF exposure for fixed income investors, Gallegos co-founded BondBloxx with ETF industry leaders Leland Clemons, Tony Kelly, Mark Miller, Brian O’Donnell, and Elya Schwartzman. The team has collectively built and launched over 350 ETFs at firms including BlackRock, JPMorgan, State Street, Northern Trust, and HSBC.

In addition to the three ratings-specific funds, BondBloxx has launched 19 fixed income ETFs since February, including seven industry sector-specific high yield bond ETFseight target-duration U.S. Treasury ETFs, and one short-duration emerging market bond ETF.

“BondBloxx has continued to launch innovative products since its founding and has expanded the ETF universe with targeted products where there is white space,” said Todd Rosenbluth, head of research at VettaFi. “Their broad range of fixed income funds makes them a firm to watch as the asset category grows.”

For more news, information, and analysis, visit the Institutional Income Strategies Channel.