U.S. High-Yield Bonds: Trends and Investment Opportunities

U.S. high-yield bonds are attracting significant investment due to anticipated interest rate cuts and improving economic conditions.

### The Growing Popularity of U.S. High-Yield Bonds
U.S. high-yield bonds, which have lower credit ratings and offer higher yields, have recently seen a surge in investment. Inflow into high-yield bond funds reached **$5 billion in May 2024** and **$6.1 billion from January to May 2024**, the highest in three years. The increase is driven by expectations of **lower U.S. interest rates**, relatively high yields, and improved economic conditions reducing **corporate credit risk**.

### The Dynamics of U.S. High-Yield Bonds
The yield on U.S. high-yield bonds is **3.59 percentage points higher** than government bonds. Delayed cuts to the U.S. benchmark interest rate have driven up demand for high-yield products, leading to a **rise in their prices** since October 2022. The decreasing yield spread indicates that high-yield bonds have **become more expensive** compared to the past.

### Investing in U.S. High-Yield Bonds: Domestic Listed ETFs
High-yield bond prices are currently **high compared to the past**, with periods of **narrower spreads** in the last ten years. The KODEX Asia U.S. High Yield Active ETF invests in **U.S. dollar-denominated high-yield bonds**, while the U.S.-listed Broad USD High Yield Corporate Bond ETF offers diversification through **approximately 170 bond issues**. The KODEX Asia U.S. High Yield Active ETF also provides **monthly dividends**.

### Investing in the Kodex High Yield Active ETF
The ETF is expected to provide an average distribution of **60 won in six distributions** after 2024, resulting in a **7% annual yield**. It is not dollar-denominated, exposing it to **won-dollar exchange rate fluctuations**, but a strong dollar can offer **exchange gains to investors**. The fund allocates approximately **48% to double B rated bonds** and **39% to higher rated bonds**, with more detailed information available on the NH Investment & Securities app.

### U.S. High-Yield Bonds: Trends, Ratings, and Investment Opportunities
* 📈 U.S. high-yield bonds, also known as high-return bonds, have gained significant attention due to their **higher yields** compared to investment-grade bonds, which are rated **up to triple B** by agencies like Moody's and S&P.
* 💵 In May 2024, **$5 billion flowed into U.S. high-yield bond funds**, contributing to a total inflow of **$6.1 billion from January to May 2024**, the **highest in three years**, driven by expectations of **lower interest rates and improved economic conditions**.
* 📉 S&P Global Ratings projects a decline in the default rate for U.S. speculative-grade bonds to **4.9% by April 2024** and further to **4.5% by March 2025**, indicating a **healthier corporate credit landscape**.
* 💰 Currently, U.S. high-yield bonds yield about **3.59 percentage points more** than 10-year U.S. Treasury bonds, with expectations that the Federal Reserve will eventually **lower interest rates**, boosting demand for high-yield products.
* 📊 As prices for high-yield bonds have risen since October 2022, the yield spread—the difference between high-yield and government bond yields—has **decreased**, suggesting that these bonds are **becoming more expensive relative to past levels**.
* 📅 The KODEX Asia U.S. High Yield Active ETF invests in U.S. dollar-denominated high-yield bonds, offering **diversification across about 170 bond issues** and an **expected distribution yield of about 7% per year**, appealing to investors seeking **monthly cash flow**.
* 💱 This ETF's exposure to fluctuations in the won-dollar exchange rate can provide **additional benefits in a strong dollar environment**, making it an **attractive option for bond investors**.
* 📲 For more detailed information on investing in U.S. high-yield bonds and the KODEX High Yield Active ETF, please refer to the NH Investment & Securities app under **stock investment information**.

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