High Yield Bond Sectors Remain Robust | ETF Trends

Despite any potential headwinds, the U.S. economy is continuing to show signs of resilience.

For the week ended March 16, the Labor Department noted that claims for state unemployment benefits were falling. Meanwhile, the National Association of Realtors reported that existing home sales rose 9.5% in February. Both findings defied analyst expectations and could indicate there’s still room for growth in the economy.

Analysts and advisors are now readjusting their timetables for economic growth. A recent forecast from TD Bank expects the U.S. economy to start slowing down later this year, while projecting the first rate cut from the Federal Reserve to occur in July.

“The U.S. economy continues to defy expectations in the face of high interest rates. At the risk of sounding like the boy who cried wolf, we still expect growth to gear down this year, but to a lesser extent than we forecasted one quarter ago. The annual average growth forecast of 2.3% for 2024 is flattered by a strong hand off from last year, masking a slowdown to 1.6% by the end of this year on a Q4/Q4 basis,” TD Bank added.

Leveraging Possible Returns From High Yield Investing

With the projections for a cooling economy continuing to scoot further down the calendar, traders and investors could leverage the possible returns from high yield investing. While high yield bonds are certainly not inflation-proof, they can be less sensitive than other asset classes to inflation and interest rates.

Recent BondBloxx research found that six of the seven high yield industries saw positive total return performance in February. BondBloxx fields a menagerie of funds that can capitalize on individual high yield industries.

One such example is the BondBloxx USD High Yield Bond Energy Sector ETF (XHYE). It focuses on high yield bonds from the energy sector, ranging from oil refining equipment to gas distribution. The fund is up 13% over the past 12 months, and BondBloxx noted that the energy sector saw the highest February return of 0.5%.

Sector strength is not limited to energy. The BondBloxx USD High Yield Bond Industrial Sector ETF (XHYI) has also saw notable gains. The fund invests in junk bonds across the broad industrial sector, including transportation and basic materials. The industrial sector saw returns of 0.3% in February, while XHYI has offered a yearly gain of 11.55%.

BondBloxx noted that the high yield consumer cyclicals sector is also showing strong returns, up 0.4% in February. The BondBloxx USD High Yield Bond Consumer Cyclicals Sector ETF (XHYC) offers strong exposure to the consumer cyclicals sector. Despite the higher exposure to macroeconomic shifts, it is currently up 14.14% over the last year.

Investing in high yield sectors can provide investors with the high-risk/high-reward gains of junk bond investing, while offering targeted exposure to commercial areas of interest. With six of the seven sectors showing monthly gains, the best may be yet to come.

BondBloxx offers 24 ETFs currently listed in the United States. These funds represent over $2.6 billion in assets under management.

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