High Yield Fixed Income Now Yielding Around 8% | ETF Trends

High yield fixed income has become a lot more attractive to investors now that yields have soared. Falling prices have pushed yields on such bond funds to around 8.4%, nearly twice the average yield of 4.35% at the end of 2021. But with analysts forecasting a possible recession in 2023, it makes sense to stick with single- and double-Bs, rather than triple-Cs.

Double-B-rated bonds recently yielded 6.9%, compared with 8.7% for Single-Bs, according to BofA Research. Meanwhile, the yield for Triple-Cs is above 15%. As of Dec. 2, Double-Bs gained 1.8% over three months, while Triple-Cs returned -1.9%, according to BofA.

Martin Fridson, chief investment officer at Lehmann Livian Fridson Advisors, told Barron’s that investors were better off avoiding bonds with triple-C ratings in the 12 months after yields peaked before a recession in the early 1990s. “In the majority of cases, it meant the difference between a negative and positive return for the period,” regardless of the maturity date of the securities, Fridson added.

Appearing on CNBC’s “Market Alert” earlier this month,BondBloxx Investment Management co-founder Joanna Gallegos said that “there is an incredible amount of opportunity in the bond market that hasn’t existed for decades,” adding that single-Bs are “the Goldilocks of high yield,” since they’re “less rate-sensitive than double-Bs and… less idiosyncratic risk than triple-Cs.”

Investors wanting to target high yield exposure, may want to consider the seven industry sector-specific high yield bond ETFs that BondBloxx launched earlier this year.

BondBloxx was launched in October of 2021 to provide precision ETF exposure for fixed income investors. Since February, the firm has launched 19 fixed income ETFs. In addition to the seven sector-specific ETFs, Bondbloxx has issued three ratings-specific high yield bond ETFseight target-duration U.S. Treasury ETFs, and one short-duration emerging market bond ETF.

“BondBloxx has continued to launch innovative products since its founding and has expanded the ETF universe with targeted products where there is white space,” said Todd Rosenbluth, head of research at VettaFi. “Their broad range of fixed income funds makes them a firm to watch as the asset category grows.”

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