CIO Sees “Value Emerging From the Bond-Market Wreckage”

It has not been a good year so far for the bond market. Amidst Federal Reserve rate hikes, a rise in Treasury rates, and record inflation, a report from MarketWatch notes that the investment-grade corporate bond market’s total return was -12.3% year-to-date through April 29, while high-yield bonds returned -8% during the same period, according to CreditSights.

While the recent headlines for the bond market have been grim, there may be some good news for long-term fixed income investors. Nuveen chief investment officer Saria Malik wrote in a client note that sharp bond market losses are unlikely to continue. For one thing, a lot of the bad news for bonds “has already been priced in.” Plus, “bonds tend to be resilient following selloffs and during Fed hiking periods, and in many cases fixed income fundamentals are good and getting better.”

Looking ahead, Malik sees “value emerging from the bond-market wreckage,” with “potentially attractive entry points … coming into view for some longer duration assets.”

Added Malik: “The selloff in bonds has created opportunities to find value and generate income in select areas of the fixed income market.”

In taxable markets, Nuveen still favors “credit-sensitive sectors, where issuers have ample interest coverage ratios.” This includes high-yield corporate bonds.

In February, BondBloxx launched seven U.S. high-yield bond ETFs that offer precise, index-based exposure to the high-yield asset class and allow investors the opportunity to diversify and manage risk to the industry sector. The funds are passively managed and track rules-based sub-indexes of the ICE BofA US Cash Pay High Yield Constrained Index.

BondBloxx was founded by ETF industry leaders Leland Clemons, Joanna Gallegos, Elya Schwartzman, Mark Miller, Brian O’Donnell, and Tony Kelly. The team has collectively built and launched over 350 ETFs at firms including BlackRock, JPMorgan, State Street, Northern Trust, and HSBC.

According to the issuer, more institutional investors are acknowledging the role that fixed income ETFs can play in their portfolios, even during times of volatility. They can offer short-term liquidity while providing a more efficient way to keep portfolios in balance. Sector ETFs enable intentional tactical tilts to be added to their portfolios. They can also enhance price discovery, even when transparency is low, or the underlying securities are not trading.

“One of our goals at BondBloxx is to provide market awareness of the variation of returns within the credit markets,” said Schwartzman. “An important yet unappreciated source of outperformance for investors is the dispersion of returns within the broader bond market categories, especially during times of market dislocation.”

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