In US high yield, sectors matter

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Sectors are important when it comes to high yield US fixed income securities. Energy and financials were flat for the week ending May 20, while healthcare and consumer discretionary underperformed, according to BondBloxx Investment Management co-founder and CIO Elya Schwartzman in an update. US credit markets weekly. The dispersion of 1-month high yield sector returns was +4%, with healthcare falling 7.2%, while energy was down 3.2%.

Schwartzman also noted that not all high performance products are created equal. Example: the recent combination of rising rates and wider spreads results in BB companies (the highest quality of high yield) returning 6.3%, while CCC companies returning 11.8%.

CCC firms continued to see the biggest widening during the week, posting returns of -1.7% for the week ending May 20, while BBs were down just 0 .3%.

Risk aversion was the theme for credit spread products as Treasury prices firmed for the second week in a row, Schwartzman noted, adding that the consensus on the economic outlook now pegs the risk of a recession to the stocks. United States at 30%.

In other bond markets, investment grade corporate bonds posted a total return of 0.4% led by Treasuries, underperforming Treasuries by -0.4%. Long-term Treasuries rose more than 2%.

Emerging markets saw sovereign spreads increase by 20 basis points, leading to returns of -0.3% for the week.

In February, BondBloxx launched seven high-yield US bond ETFs that provide precise index exposure to the high-yield asset class and allow investors to diversify and manage industrial sector risk. The funds are passively managed and track rules-based sub-indices of the ICE BofA US Cash Pay High Yield Constrained Index.

BondBloxx was founded by ETF industry leaders Elya Schwartzman, Leland Clemons, Joanna Gallegos, Mark Miller, Brian O’Donnell and Tony Kelly. The team has collectively built and launched over 350 ETFs in companies including BlackRock, JPMorgan, State Street, Northern Trust and HSBC.

According to the issuer, more and more institutional investors recognize the role that bond ETFs can play in their portfolios, even in times of volatility. They can offer short-term liquidity as well as a more efficient way to keep portfolios balanced. Sector ETFs make it possible to add intentional tactical inclinations to their portfolios. They can also improve price discovery, even when transparency is low or the underlying securities are not trading.

“One of our goals at BondBloxx is to educate the market about the variation in yields in credit markets,” Schwartzman said. “An important but unrecognized source of outperformance for investors is the dispersion of returns within broader categories of the bond market, particularly in times of market dislocation.”

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

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