High Yield Corporates & Financials See Rally | ETF Trends

Amid record inflation numbers and the expectation of a more hawkish Fed, high yield fixed income saw a rally within several sectors for the week ended July 15. High yield financials bonds and technology, media, and telecom bonds both returned 0.5% for the week, according to BondBloxx Investment Management’s weekly market commentary. Meanwhile, high yield corporates returned 0.26% for the week ended July 15, said Nuveen’s weekly fixed income commentary.

“The underlying growth outlook remains healthy, as consumers have strong balance sheets, businesses are reinvesting and Covid recedes,” according to Nuveen. “This should keep defaults low.”

In the U.S. high yield space, BB credit reported a second week of positive returns, (0.4% for the week), as single-Bs were up 0.2%.

Yields on so-called corporate junk bonds have also skyrocketed. The yield on the ICE BofA U.S. High Yield Index, which tracks companies with below investment-grade credit ratings, has more than doubled to about 8.4% from a record low of less than 4% roughly a year ago, even though “credit fundamentals appear strong,” wrote Saira Malik, Nuveen’s chief investment officer, in a note to clients.

Launched in October of 2021 to provide precision ETF exposures for fixed income investors, BondBloxx was co-founded by ETF industry leaders Leland Clemons, Joanna Gallegos, 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.

“Our conversations with investors have reinforced what we already knew – there is significant demand for more targeted fixed income products,” said Kelly. “Our initial product suites aim to create a full toolkit for high yield investors looking to implement their specific views on the market, and we anticipate extending this approach to other fixed income asset classes.”

Last month, BondBloxx announced the launch of the BondBloxx JP Morgan USD Emerging Markets 1-10 Year Bond ETF (XEMD), which tracks the J.P. Morgan EMBI Global Diversified Liquid 1-10 Year Maturity Index and includes U.S.-denominated fixed-rate and floating-rate instruments with at least $1 billion in outstanding debt issued by sovereign and quasi-sovereign entities in index-eligible countries. In May, the firm launched three ETFs that track ratings-specific sub-indexes of the ICE BofA US Cash Pay High Yield Constrained Index. These three new products join the suite of seven sector-specific high yield ETFs that the high yield fixed income ETF issuer launched earlier this year.

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