At a time when equity markets are continuing to wobble, high-yield bonds are currently benefiting from elevated coupon income and are less risky than equities in the current economic environment. The latest rate hike from the Federal Reserve has also contributed to an environment in which high-yield bond funds have become increasingly attractive to investors.
Plus, high yield is living up to its name. Yields for so-called “junk bonds” as measured by the ICE BofA US High Yield Index at 8.63% as of March 29, up from 5.7% a year prior.
VettaFi’s head of research Todd Rosenbluth recently noted that financial advisors have become increasingly interested in high-yield fixed income. Investment sentiment analysis from VettaFi shows that high-yield bond ETFs represented a higher percentage of the corporate bond fund traffic on VettaFi platforms in mid-March relative to a month earlier.
“We are seeing the sentiment toward high yield improve in the past month with more advisors looking to learn about these funds and more planning to increase exposure than decrease going forward,” Rosenbluth said.
Single-Bs: The Goldilocks of High Yield
Investors seeking higher-yielding opportunities may want to consider single-B high-yield bonds. Not only do single-B high-yield bond indexes have historically lower interest rate sensitivity than double-B high yield bond indexes, but single-Bs also have stronger credit profiles and lower default risk than triple-C high-yield bond indexes. They also currently offer a higher yield than broad high-yield bond indexes.
Investors seeking exposure to these high-yield fixed income securities may want to consider the BondBloxx B Rated USD High Yield Corporate Bond ETF (XB ), which seeks to invest in bonds rated B1 through B3. XB currently offers a yield-to-worst of 9.24%.
BondBloxx Investment Management co-founder Joanna Gallegos described as “the Goldilocks of high yield,” since they’re “less rate-sensitive than double-Bs and… less idiosyncratic risk than triple-Cs.”
XB is one of three ratings-specific high-yield bond ETFs BondBloxx launched in May.
BondBloxx was launched in October of 2021 by ETF industry leaders to provide precision ETF exposure for fixed income investors. Since February 2022, the firm has launched 19 fixed income ETFs.
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