The Investment Case for BBB-Rated Corporate Bond ETFs

BBB-rated corporate bond ETFs are an attractive opportunity for investors in the current environment.

Over the past 20 years, BBB-rated corporate bonds have outperformed the Bloomberg US Corporate Index across the 1-5, 5-10, and 10+ year maturity indices by 52 bps, 51 bps, and 84 bps per year, respectively, according to BondBloxx.

See more: “How Investors Are Positioning Fixed Income Portfolios in 2024

Why BBB Corporates Now

There are several reasons BBB-rated corporate bonds look compelling right now. To start, BBB corporate bonds are currenting yielding near 13-year highs. Furthermore, historical default rates for all investment-grade rating categories have been very low.

BBB corporates outperformance is driven by its higher average coupon income, which has been the primary driver of long-term returns for BBBs.

Finally, BBB-rated corporate bonds have historically offered a long-term spread advantage versus the broad U.S. Corporate Index

How to Use BBB-Rated Corporate Bond ETFs in Client Portfolios

Three compelling BBB-rated corporate bond ETFs include the BondBloxx BBB Rated 1-5 Year Corporate Bond ETF (BBBS), the BondBloxx BBB Rated 5-10 Year Corporate Bond ETF (BBBI), and the BondBloxx BBB Rated 10+ Year Corporate Bond ETF (BBBL).

BBBS, BBBI, and BBBL cover the bottom credit tier of the investment-grade corporate bond market. However, each fund targets a different maturity range.

BBBS may be an ideal fit for investors anticipating stable interest rates. The fund is optimal for those seeking current higher yields with relatively low risk in short-term corporate bonds.

On the other hand, investors expecting interest rate cuts might prefer BBBI. BBBI may help minimize reinvestment risk and capture potential yield advantage while maintaining similar duration compared to U.S . Aggregate index funds.

Finally, BBBL may be an ideal fit for investors looking to capitalize on the potential for falling interest rates and long-term returns.

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