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Fixed Income High Yield: Investing in a transformed credit ecosystem

Shannon Ward Alvaro Peró Gala

13 February 2026

The structural evolution of the high yield market, driven by a transformed borrower universe, improved liquidity, stronger fundamentals, and a more diverse array of financing alternatives, has reshaped this asset class into something very different from its origins.

 

High yield is a much higher-quality market, with BB rated bonds now over half the index. Alternative financing channels now absorb weaker credits, leaving public high yield markets structurally higher in quality and more stable across cycles.

 

The US high yield market remains the anchor for global investors due to its sheer size, depth and diverse participant base. This ecosystem ensures reliable liquidity and more efficient price discovery, especially during stress, setting it apart from the structurally shallower European and Asian markets.

 

Given this changed backdrop, today’s high yield market requires a new investment framework. With defaults trending below historical averages and transparency materially improved, generating alpha now hinges on consistent returns in normal markets, index-aware positioning and nuanced security selection rather than simply avoiding the losers.

 

For investors, this evolution also alters how high yield should be evaluated within portfolios. We believe it now offers a compelling combination of attractive income, reduced downside risk, daily liquidity, and strong returns across cycles. This combination underpins the case for maintaining a structural allocation to high yield within fixed income portfolios.

 

Even when spreads appear tight, the income component has been a powerful driver of long term returns and current all-in yields remain attractive. Remaining invested, rather than attempting to time re entry, has been essential to capturing this compounding effect.

 

Today’s high yield universe

 

 US HYEuro HYAsia HY
Market CapitalisationUS$1,477bn€357bnUS$114bn
Issues1,969646195
OAS268bps264bps441bps (spread to worst)
Duration2.7 years2.8 years2.9 years
Average ratingBA3/B1BA2/BA3BA3/B1

 

Data as of 31 December 2025. Source: Bloomberg, JP Morgan. OAS: Option-Adjusted Spread

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Shannon Ward is a fixed income portfolio manager at Capital Group. She also serves on the Fixed Income Management Committee and the Target Date Solutions Committee. She has 33 years of investment industry experience and has been with Capital Group for nine years. She holds an MBA from the University of Southern California and a bachelor's degree in psychology from the University of California, Santa Barbara. Shannon is based in Los Angeles.

Alvaro Peró Gala is an investment director at Capital Group. He has seven years of investment industry experience and has been with Capital Group for one year. He holds an MBA from INSEAD, France, and holds both a master`s and bachelor's degree in industrial engineering from the Universidad Politécnica de Cataluña. He also holds the Chartered Financial Analyst® and Chartered Alternative Investment Analyst℠ designations. Alvaro is based in London.

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