The performance of high-yield-credit investments has been among the highest of all credit sectors over the past few years, a trend that seems set to continue. The junk-rated segment of the bond market was the second-best-performing in 2025, trailing only emerging market fixed income, which returned 11.11%, compared with U.S. high yield’s 8.62%, according to data from Bloomberg L.P.
U.S. high-yield credit this year is also outperforming all but the lowest-rated debt—returning 0.71% as of January 22, outperforming U.S. investment grade (0.26%) and mortgage-backed securities (0.14%), according to data from Bloomberg. Only CCC-rated credit, among the lowest of rated debt sectors, has returned 1.15%.
A December 2025 report from J.P. Morgan Private Bank noted the ability of high-yield credit to enhance risk-adjusted returns. The report stated that from 2000 to 2025, a portfolio holding 20% high-yield and 80% investment-grade bonds could provide annualized returns of 5.5% with volatility of 5.95%, higher returns than a 100% investment-grade portfolio (5.14%), with less volatility.
A June 2025 report from Lord, Abbett & Co. noted that the quality of credit in the high-yield market has significantly improved over the past 20 years, with the BB-rated segment of the high-yield index nearing a record high of more than 50% of the basket. Index allocation to CCC-rated corporate bonds—the likeliest to default—was also near record lows, according to Lord Abbett.
Some credit managers have expressed more comfort going with below-investment-grade options.
“We are comfortable playing the credit markets, including going down to some of the higher-yielding, tough opportunities—high-yield bonds, senior loans, preferreds—so a little bit more of the yieldier parts of public fixed income,” says Anders Persson, CIO and head of global fixed income at Nuveen.
Persson notes that investors should focus on the higher quality of the below-investment-grade credit spectrum.
Fixed-income investors, while they have enjoyed strong returns from high yield, are not looking to take on a ton of risk, says Andrew Jackson, head of Vontobel’s fixed-income boutique, noting that 2025 bankruptcies of auto parts supplier First Brands and sub-prime auto lender Tricolor—both borrowers in the syndicated loan and private debt markets—has led to caution among credit investors.
“We are not seeing the level of compression that we would normally see when credit spreads are this tight,” Jackson says. “We’re not seeing everyone flooding into U.S. high yield and pushing, in particular, single Bs and double Bs massively tight. We normally see that in this environment, and I think that tells you that fixed-income investors are relatively cautious.”
But opinions vary.
Indrani De, head of global investment research at FTSE Russell, told the CIO audience at the January 22 Investment Outlook webinar that high-yield debt markets have the same forces affecting them as equity markets, which are expected to remain favorable to both.
Stas Melnikov, head of quantitative research and risk data solutions at data and AI provider SAS, noted at the webinar that liability-driven investors should be cautious about reaching for yield at a time when spreads may not compensate for embedded default and downside risk.
Adam Abbas, head of fixed income at Harris Associates, including the Oakmark Funds, says the current market backdrop calls for selectivity rather than defensiveness.
“We are not seeing evidence of acceleration in credit deterioration or the types of stress that typically precede a meaningful default cycle,” Abbas says. “Balance sheets remain generally manageable, liquidity is still available, and capital markets remain open for most issuers.”
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Tags: corporate debt, credit markets, high-yield