XBB: Innovative Fund From BondBloxx, But Spreads Are Too Tight

2025-05-27 21:55:09 ET

Summary

• XBB is a well-structured, low-cost ETF offering diversified exposure to BB-rated high-yield bonds, ideal as a fixed income building block.
• Current market spreads are at historical lows, making XBB primarily a low-yield dividend play with limited upside and significant downside risk.
• Despite liking XBB’s construction, we rate it a 'Sell' due to unfavorable risk/reward, especially when safer assets offer comparable yields.
• We would only consider XBB attractive if spreads rise above 3%; for now, defensive positioning is warranted given market uncertainty.

Thesis

One of our favorite asset managers in the fixed income space (BondBloxx) has put out another interesting fixed income exchange-traded fund. Here we are talking about the BondBloxx BB Rated USD High Yield Corporate Bond ETF ( XBB ). As per its objective, the name:

Seeks to track the investment results of the ICE BofA BB US Cash Pay High Yield Constrained Index (the “Index”), which contains all bonds in the ICE BofA US Cash Pay High Yield Constrained Index (the “Underlying Index”) that are rated BB1 though BB3, based on an average of Moody’s Investors Services, Inc. (“Moody’s”), S&P Global Ratings (“S&P”) and Fitch Ratings, Inc. (“Fitch”), but caps issuer exposure at 2%.

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