The 12.49% Yield Junk Bond ETF Lending Money to Companies Banks Won’t Touch

Bonds can generate equity-like returns if you’re willing to take enough risk. The question is which kind, and there’s no free lunch either way.

One route is duration. Buy a long-term bond, and relatively small changes in interest rates can produce large price movements. Long-duration bonds can perform exceptionally well when yields fall, but the same sensitivity works against investors when rates rise.

The other route is credit risk. Instead of lending to the U.S. government for decades, you lend for shorter periods to companies with much weaker balance sheets and demand substantially more interest as compensation for the possibility they can’t repay you.

Both risks have environments where they can perform well. For credit investors willing to move to the riskiest end of the conventional corporate bond market, there’s the BondBloxx CCC Rated USD High Yield Corporate Bond ETF (XCCC), which currently pays a 12.49% 30-day SEC yield.

What Does CCC Actually Mean?

Investment-grade corporate bonds generally carry ratings of BBB-/Baa3 or higher, depending on the rating agency. Move below that threshold into BB, B, and CCC territory, and you’re dealing with speculative-grade, or junk, bonds.  These companies pay much higher yields because investors see a materially greater probability that they won’t make all promised interest and principal payments.

CCC sits particularly deep into speculative-grade territory. According to historical default data from S&P Global, the cumulative default rate increases significantly as you move down the credit-rating ladder. For CCC/C-rated issuers, the three-year cumulative default rate has historically been around 45.67%.

That doesn’t mean 45.67% of XCCC’s current holdings will default over the next three years. Historical default studies cover different issuers and economic environments, ratings can change, bonds can mature or be sold, and portfolio construction matters. But it does illustrate what a CCC rating represents. These are issuers where the possibility of default needs to be taken seriously.

High-yield bonds can perform well when economic growth remains resilient, corporate profits hold up, and credit spreads tighten. Recessions can produce the opposite environment. Defaults rise, investors demand greater compensation for credit risk, spreads widen, and junk-bond prices can fall at the same time equities are struggling.

How XCCC Diversifies the Risk

Buying one CCC bond would expose you to the possibility that a single corporate default causes a substantial permanent loss. XCCC attempts to spread that risk across a portfolio of CCC-rated U.S. dollar corporate bonds. Importantly, the ETF caps individual issuers at approximately 2% of the portfolio. That limits the damage any one issuer can inflict if it defaults.

XCCC charges a 0.40% expense ratio and currently offers an 12.49% 30-day SEC yield. That yield is the primary attraction. You’re receiving income more commonly associated with equity-like expected returns while remaining in the bond market, but the underlying source of that yield is substantial default risk.

Diversification helps manage idiosyncratic risk. It doesn’t remove systemic credit risk. If the economy enters a deep recession and defaults rise across the CCC market simultaneously, owning dozens of issuers won’t prevent the entire asset class from repricing lower. For investors willing to make that bet, the yield provides substantial compensation. Just remember why borrowers rated CCC have to offer yields that high in the first place.

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