Amid Rate Speculation, Consider High Yield Corporate Bonds

On Wednesday, Federal Reserve Chair Jerome Powell said that while interest rate cuts won’t happen just yet, he believes cuts could be on the horizon. Powell added that he does not think the U.S. is heading toward a recession in the near term. Indicators of a potentially stabilizing economy can provide confidence to investors who are seeking high-risk, high-reward opportunities. CCC-rated corporate bonds fall into such a category. These kind of high yield bonds also carry the benefit of being less vulnerable to shifting interest rates.

The BondBloxx CCC-Rated USD High Yield Corporate Bond ETF (XCCC) provides meaningful exposure to these options. It carries a net expense ratio of 0.40%. The fund aims to track the performance of the ICE CCC US Cash Pay High Yield Constrained Index. XCCC invests in high-yield bonds that are rated CC1 through CC3.

Within the last month, it has seen a net inflow of $13.45 million, possibly signaling increasing investor optimism about the space. XCCC has gained roughly 14.66% in the last 12 months, while being up about 7.14% within the last three months. The fund has an annual dividend yield of 11.0%.

CCC bonds have shown relatively stable yields throughout the last 12 months, mostly staying between 13%-14%, with the occasional jump to 15% or dip to 12%. The yield stability may provide reassurance to prospective investors.

Investing in High Yield CCC Bonds via an ETF Results in Less Risk Exposure

That said, CCC bonds innately possess a greater risk of default compared to other credit tiers. Despite that, investing in CCC bonds through an ETF vehicle gives investors less exposure to risk than if they invested in individual bonds simply because of the diversification provided by the wrapper.

Wary investors who aren’t ready to commit to CCC bonds may find appeal in the BondBloxx BB-Rated USD High Yield Corporate Bond ETF (XBB). It invests in high yield bonds that are rated BB1 through BB3, in an effort to track the results of the ICE BofA BB US Cash Pay High Yield Constrained Index. BB-rated bonds are also considered less at risk of default, making them potentially safer investments.

XBB has a net expense ratio of 0.20%. The fund is up 10.31% over the last 12 months, and up 2.88% over the last three months. The annual yield for XBB is 6.30%

BondBloxx currently has over 20 ETFs listed in the United States, representing over $2.5 billion in assets under management.

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