While April was a tough month for the U.S. high yield market, May was a different story altogether. BondBloxx’s latest Fixed Income Market Commentary highlighted the strong rebound for high yield bonds in May, bolstered from good earnings and “the largest retail inflows into the asset class this year.” BondBloxx also noted that the bond categories rated BB and B have caught up to the YTD performance of peers rated CCC.
Looking at the new issue market, U.S. high yield concluded the month with the highest volume since September 2021. This comes as more investors are feeling confident regarding potential rate cuts in 2024, adding to enthusiasm in the high yield sector.
“We suggest that investors consider increasing their allocations to single-B and CCC-rated exposures, to capture their higher income and total return potential in the context of a resilient economic environment, while benefiting from the cushion that higher coupon income provides from possible spread volatility,” added BondBloxx.
Investment Options
The BondBloxx library of ETFs provides options for investors seeking to capitalize on high yield momentum. The BondBloxx B Rated USD High Yield Corporate Bond ETF (XB ) can help investors access bond securities rated B.
Bonds rated B can harness much of the similar high yield momentum as assets rated CCC, but with a higher credit rating to mitigate potential risk of default. BondBloxx’s data noted that XB’s index, the ICE BofA Single-B US Cash Pay High Yield Constrained Index, saw a total return of 11.3% over 12 months, as of May 31, 2024. Over the month of May, the index’s total return rose 1.0%.
The fund has a net expense ratio of 0.30%. XB primarily holds bonds with an intermediate duration, providing access to potential long-term returns while mitigating reinvestment risk.
With good news continuing to mount for high yield bonds, XB is witnessing good fund flows, having gained nearly $2 million within just the last week. The ETF is offering good yield, with a yield to maturity of 7.93% as of May 31, 2024.
For more news, information, and analysis, visit the Institutional Income Strategies Channel.
