Our analysis also suggests that short-maturity high-yield bonds capture most of the broader high-yield market’s upside in risk-on environments, pointing to better potential risk-adjusted outcomes over full market cycles.
Credit Selection Matters
Of course, investors still need to be judicious about how they deploy capital, as heightened volatility can create dispersion among credit issuers. Tariffs may benefit some firms but handicap others, and slowing growth is particularly problematic for cyclicals and CCC-rated bonds—underscoring the importance of active management.
Currently, we see the best opportunities in non-cyclicals and high-yield credits rated B and above. In our view, these are better insulated from economic shocks than CCC-rated issues, which carry meaningfully higher default risk. In fact, historically, a portfolio of short-maturity BB and B-rated bonds has exhibited lower volatility than investment-grade BBB bonds.
For all these reasons, we believe that short-maturity high yield presents a timely opportunity for investors to stem volatility while capturing attractive income potential.
