High-yield yields dominate most bond sectors

Year to date, US high yield fixed income returns have dominated most fixed income sectors. High yield has returned -7.7% year-to-date to May 31, according to the co-founder of BondBloxx Investment Management and CIO Elya Schwartzman in a monthly update on US credit markets.

Meanwhile, interest rates have hit higher-rated and longer-dated sectors, with investment-grade bonds yielding -12% and IG fixed-income securities down more than 9% over the course of the year. of the same period. For the month of May, high yield debt lagged but still posted positive returns for the month at 0.3%.

Source: Ice Data Services, JP Morgan, Bloomberg, BondBloxx

Within US high yield, non-cyclical Energy and Consumer stocks posted strong performances in May, returning 1.2% and 1.3% in May, respectively. Schwartzman attributed the positive returns in oil prices to any easing in economic trends and continued debt offerings by industry giant Occidental Petroleum.

At the other end of the spectrum, credit concerns from several issuers sent the US high-yield health care sector down -1.6% in May.

The performance range in May was 2.9% between the best and worst performing sectors. Year-to-date, there has been a nearly 6% spread between the best and worst performing sectors as market volatility has amplified the dispersion.

Source: Ice Data Services, JP Morgan, Bloomberg, BondBloxx

Falling Treasury yields in May allowed the BB sector to post a positive return of 1.5%, topping the high-yield rating categories and even reporting a 10bp spread tightening. Whereas CCC corporates saw a sharp turnaround in the last half of May, yields were still -2.9% for the month, with spreads widening 100bps in this tranche.

Schwartzman co-founded BondBloxx with ETFs industry leaders 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 are recognizing the role that fixed-income 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.”

Earlier this month, BondBloxx launched three new ETFs that track the ratings-specific sub-indices of the ICE BofA US Cash Pay High Yield Constrained Index. These three new products join the suite of seven high-yield sector-specific ETFs that the high-yield fixed income segment ETFs transmitter launched earlier this year.

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