High Yield Fixed Income Enjoying Massive Rebound | ETF Trends

High yield fixed income has made an extraordinary recovery as investors bet that the Federal Reserve’s efforts to tame inflation won’t trigger a recession.

The Financial Times reported on August 16 that only 6.2% of high yield bonds were trading at distressed levels, down significantly from 11.6% on July 5, according to analysis by Marty Fridson, chief investment officer of Lehmann Livian Fridson Advisors.

Earlier this year, investors had shied away from U.S. high-yield corporate debt, worried that the Fed aggressively raising interest rates would push the economy into recession. But with the latest inflation data coming in lower than originally forecast, the prices of so-called corporate junk bonds have recovered.

“Over a strikingly short interval, high-yield investors [have come] around to believing inflation is sufficiently under control that the Fed [will] not have to hike interest rates dramatically enough to trigger a deep recession,” Fridson said. “Time will tell whether they were correct in changing their views on that matter.”

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

In May, the firm launched three new 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. The firm also has an emerging markets product and an additional eight Treasury products that allow investors to get specific duration targets.

Appearing on CNBC’s “Closing Bell: Overtime” to discuss the company’s current market strategy, Gallegos explained that BondBloxx was created after its founders looked at where markets were in March 2020 and said they “need to be delivering better tools for institutional investors to manage their risk through markets like this.”

“We see this as just an opportunity to be using more precise tools, and that’s what we know the need is,” she added.

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