Looking Under the Hood of High Yield

High-yield investing requires distinguishing issuer-level credit risk rather than treating the market as a single asset class.

• As of July 31, 2026, BB-rated spreads were 173 basis points, only 4 basis points wider year to date, while B-rated spreads were 304 basis points, up 3 basis points.
• CCC-rated spreads reached 1,034 basis points, 149 basis points wider year to date, showing that most of the market’s widening was concentrated in the weakest credits.
• A BB issuer just below investment grade can have a very different risk profile from a highly leveraged CCC company facing refinancing uncertainty, even when their yields are similar.
• Investors should assess exposure across BB, B and CCC issuers, issuer and sector concentration, maturity dates, refinancing needs, cash flow and creditor protections rather than relying on headline yield or trailing returns.
• Greater dispersion can create opportunities for bottom-up security selection, but a high coupon may also signal elevated default or recovery risk, and similar high-yield allocations can carry materially different risks.

Takeaway: The widening gap between BB, B and CCC spreads makes credit quality, diversification and security-level fundamentals more important than broad high-yield exposure; investors should seek yield that provides adequate compensation for credit and liquidity risk while recognizing that portfolio exposure may reflect security selection rather than a broad market call.