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27 June, 2025
3 mins 30 secs read
In this guide, we will explore:
High yield bonds are fixed income securities that credit ratings agencies rate between BB and C grade and are also known as ‘non-investment grade’, indicating they are below an investment grade credit rating. High yield bonds are typically fixed rate securities issued by corporations, and they generally pay higher rates of return than investment grade securities to compensate for their higher credit risk.
Credit ratings are determined by one or more independent rating agencies, who assess the credit worthiness of an issuer or security, and the probability of default. Credit ratings provide investors with an independent and transparent way to measure the credit risk of fixed income assets;
Source: References Standard & Poor’s rating methodology.
The global high yield market is highly diversified, covering a broad range of sectors and security types. Ford, United Airlines, Tesla and Netflix are just a few examples of major corporations that have depended on tapping the high yield credit market to fund their growth phase at some point. High yield securities range from corporate bonds, bank loans and emerging market debt to hybrid or subordinated debt securities, as well as structured securities.
High yield bonds generally have higher credit risk than investment grade bonds, because high yield bonds are typically issued by companies with lower credit worthiness. Securities with lower credit ratings are more sensitive to a downturn in economic cycles as this can increase the potential for corporate defaults.
High yield bonds generally have lower interest rate risk compared to investment grade bonds. This is because high yield bonds offer higher coupon payments to compensate for their higher credit risk and a larger portion of the bond's return is received earlier, which reduces the bond's duration and, consequently, its sensitivity to interest rate changes. High yield bonds also often have shorter maturities than investment grade bonds, meaning that the bond's price is less sensitive to interest rate changes, as the bond will be repaid sooner. Lastly, the prices of high yield bonds are more influenced by changes in credit spreads, while investment grade bonds are more sensitive to interest rate movements because their credit spreads are narrower and more stable.
Read more on fixed income concepts.
Here’s how investment grade and high yield securities compare.
| Feature | Investment grade bond | High yield bond |
| Yield/Income potential | Lower | Higher |
|---|---|---|
| Interest rate risk | Higher | Lower |
| Credit risk | Lower | Higher |
| Sensitivity to economic cycle | Lower | Higher |
As with all fixed income investing, generating attractive returns is often highly dependent on ‘avoiding the losers’. This is even more important with high yield bonds, given the greater potential for default.
At Macquarie, we take a high conviction but considered approach to high yield investing, seeking to target issuers or securities with improving credit profiles, whilst aiming to avoid those with the potential for credit deterioration. For example, securities with a credit rating of CCC and below may not offer an attractive step-up in yield for the associated increase in credit risk.
The global high yield market is well-established, having first originated over 40 years ago. At US$2.7 trillion (including bank loans), it’s larger than the ASX300 and is continuing to grow in size and improve in credit quality. In particular, the issuance of BB rated securities – the highest credit quality in the high yield market – have experienced a steady increase over the past 20 years, becoming the largest component of the market.
Size and credit quality of the high yield credit market
Source: Bloomberg, December 2024
The global high yield market is also highly diversified when compared with investment grade credit, which is typically dominated by financial corporations. Global high yield opportunities exist across a broad range of industries including technology, industrials, communication, energy providers, and consumer goods.
Source: Bloomberg, 27 June 2025*
Many alternative high yield credit assets – such as private debt – tend to lock capital up for an extended period and offer limited liquidity windows. However, high yield securities are now easily accessible as exchange traded funds (ETFs), listed on a stock exchange.
For those investors seeking to replace their exposure to other credit segments with a high yield focused, listed alternative, the Macquarie Global Yield Maximiser Active ETF (ASX: MQYM), offers an actively-managed strategy focused on high yielding credit opportunities in global markets. Using a multi-sector credit approach, this fund seeks to boost portfolio yield, and deliver higher levels of monthly distributions than cash and traditional fixed income investments. It is also available as an unlisted managed fund.
* Past performance is not a reliable indicator of future performance. The following indices have been used to represent the different parts of the fixed income investment universe above: Global bonds – Bloomberg Global Aggregate Index; Global investment grade corporate – Bloomberg Global Aggregate Credit Total Return Index; Global high yield – Bloomberg Global High Yield Index. Yield-to-maturity is the return that would be earned over the next year if there were no changes to interest rates and assuming there are no changes to the underlying investments. The number which is quoted is before fees. Yield-to-maturity is not the actual return that an investor can expect to receive by investing in these indices. Average yield-to-maturity has been calculated as the average of the daily yield-to-maturity over the last 20 years or since inception of the relevant index. Dividend yield is the annual dividend income on an equity position divided by the current market price of that equity position and has been calculated as the average of the daily dividend yield over the last 20 years.
All investments carry risk. Different investments carry different levels of risk, depending on the investment strategy and the underlying investments. Generally, the higher the potential return of an investment, the greater the risk (including the potential for loss and unit price variability over the short term). The risks of investing in this Fund include:
Investment risk: The Fund seeks to generate higher income returns than traditional cash investments. The risk of an investment in the Fund is higher than an investment in a typical bank account or term deposit. Amounts distributed to unitholders may fluctuate, as may the Fund’s NAV unit price, by material amounts over short periods.
Manager risk: There is no guarantee that the Fund will achieve its performance objectives, produce returns that are positive, or compare favourably against its peers, or that the strategies or models used by the Investment Manager will produce favourable outcomes.
Income securities risk: The Fund may have exposure to a range of income securities. The value of these securities may fall, for example due to market volatility, interest rate movements, perceptions of credit quality, supply and demand pressures, a change to the reference rate used to set the value of interest payments, market sentiment, or issuer default.
More information on the risks of investing in the Fund is contained in the Product Disclosure Statement for the Fund, which should be considered before deciding to invest in the Fund.
Important information
The Target Market Determination (TMD), available at macquarie.com/mam/tmd, includes a description of the class of consumers for whom the Fund is likely to be consistent with their objectives, financial situation and needs.