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

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.

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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 (NYSEARCA:XBB). As

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.