In U.S. High Yield, Sectors Matter

Sectors matter when it comes to U.S. high yield fixed income. Energy and financials held flat for the week ending May 20, while healthcare and consumer cyclicals underperformed, according to BondBloxx Investment Management co-founder and CIO Elya Schwartzman in a weekly update on the U.S. credit markets. The dispersion in one-month high yield sector returns has been +4%, with healthcare down 7.2%, while energy was down 3.2%.

Schwartzman also noted that not all high yield is created equal. Case in point: the recent combination of rising rates and wider spreads now has BB corporates (the highest quality within high yield) yielding 6.3%, while CCC corporates are yielding 11.8%.

CCC corporates continued to see the most widening during the week, reporting returns of -1.7% for the week ending May 20, while BBs were down just 0.3%.

Risk-off was the theme in credit spread products as Treasury prices firmed for the second consecutive week, Schwartzman noted, adding that the consensus for the economic outlook now pegs the risk of a recession in the U.S. at 30%.

In other fixed income markets, investment-grade corporates reported a 0.4% total return due to Treasuries, underperforming Treasuries by -0.4%. Long-dated Treasuries were up over 2%.

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

In February, BondBloxx launched seven U.S. high-yield bond ETFs that offer precise, index-based exposure to the high yield asset class and allow investors the opportunity to diversify and manage risk to the industry sector. The funds are passively managed and track rules-based sub-indexes 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 at firms including BlackRock, JPMorgan, State Street, Northern Trust, and HSBC.

According to the issuer, more institutional investors are acknowledging the role that fixed income ETFs can play in their portfolios, even during times of volatility. They can offer short-term liquidity alongside a more efficient way to keep portfolios in balance. Sector ETFs enable intentional tactical tilts to be added to their portfolios. They can also enhance price discovery, even when transparency is low or the underlying securities are not trading.

“One of our goals at BondBloxx is to provide market awareness of the variation of returns within the credit markets,” said Schwartzman. “An important yet unappreciated source of outperformance for investors is the dispersion of returns within the broader bond market categories, especially during times of market dislocation.”

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


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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