High Yield Is Living Up to its Name

High yield is really living up to its name. An Ice Data Services index shows that yields on so-called domestic junk bonds have risen to nearly 8.6% from a mid-August low of 7.4%, reflecting a substantial price drop. And the gap between the yields on U.S. high yield fixed income and U.S. government debt has also widened considerably—to slightly above five percentage points from 4.2 percentage points in mid-August.

The gap between the two forms of fixed income began the year at about three percentage points.

The rise in yields “reflects an increase in rate rise expectations that have affected the entire U.S. debt market,” according to the Financial Times. “Traders now expect the Fed to lift rates to nearly 4 percent by early next year, up from between 2.25 and 2.5 percent today.”

So, for riskier investors who want to take advantage of high yields within their fixed income portfolios, it helps to take a targeted approach. That’s where BondBloxx Investment Management comes in.

Launched in October of 2021 to provide precision ETF exposure 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.”

In May, BondBloxx launched three high yield corporate bond ETFs that track ratings-specific sub-indexes of the ICE BofA U.S. Cash Pay High Yield Constrained Index: the BondBloxx BB Rated USD High Yield Corporate Bond ETF (NYSE Arca: XBB), which seeks to invest in bonds rated BB1 through BB3; the BondBloxx B Rated USD High Yield Corporate Bond ETF (NYSE Arca: X.B.), which aims to invest in bonds rated B1 through B3; and the BondBloxx CCC Rated USD High Yield Corporate Bond ETF (NYSE Arca: XCCC), which seeks to invest in bonds rated CCC1 through CCC3.

These products join the suite of seven sector-specific high yield ETFs that the high yield fixed income ETF issuer launched earlier this year.

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