You can't create a group under a parent folder. So the parent needs to be converted to a group first in order to be able to a group under it. By default for new projects created with Xcode 16 Beta 3 or higher the top level is a folder (blue). The folder has a blue icon. The group has a yellow icon. In your case aaa is a blue icon, meaning it is a folder, convert that to a group first and then you will be add groups under it.

This is a valid bug, I have created a new Feedback: FB21436493, Apple Engineers please have a look at it

Glad to know you have your own sync between CoreData and CloudKit. Thanks for posting your code, got to applaud the effort of doing this by yourself. Since I am using the built in SwiftData / CloudKit sync, I am hoping that my app allows whatever SwiftData / CloudKit background task had been built for and doesn't block it