Hello, I am Han Jeong-hee from the Product Planning Department of NH Investment & Securities. Today, we will discuss U.S. high-yield bonds. High yield refers to bonds with high yields or high-return bonds. When a company issues bonds, it receives a credit rating from credit rating agencies, such as A or B ratings. The credit rating is assessed based on the issuing company's ability to pay interest and principal. Moody's, Standard & Poor's, and Fitch assign credit ratings from the highest, which is triple A, to the lowest, which is C. Bonds rated up to triple B are considered investment-grade bonds, while those rated lower are categorized as speculative-grade bonds or high-yield bonds. These bonds have lower credit ratings, which is why they offer higher yields. Recently, U.S. high-yield bonds have gained popularity.

We are in a high situation, and we can see how much investment is flowing into funds that invest in high-yield bonds. According to Refinitiv data, in May 2024 alone, $5 billion flowed into U.S. high-yield bond funds, and from January to May 2024, the total inflow reached $6.1 billion, marking the highest level in three years. This is attributed to the expectation that the Federal Reserve will lower U.S. interest rates this year, the relatively high yields of high-yield bonds, and improved economic conditions reducing corporate credit risk. S&P Global Ratings expects that the default rate for U.S. speculative-grade bonds will fall to 4.9% in April 2024 and to 4.5% in March 2025. The yield on 10-year U.S. Treasury bonds is currently 4.26%, while U.S. high-yield bonds are...

The yield on U.S. high-yield bonds is about 3.59 percentage points higher than that of government bonds. Although the anticipated cuts to the U.S. benchmark interest rate that were expected to begin in 2023 have continued to be delayed, it is merely a matter of timing and magnitude; the general direction is expected to be downward. In anticipation of lower interest rates in the future, demand for high-yield products has surged, causing the prices of high-yield bonds to continue rising since October 2022. The yield spread of high-yield bonds is calculated by subtracting the yield of government bonds from the yield of high-yield bonds. This spread indicates the premium at which high-yield bonds are trading compared to government bond yields, serving as a gauge for the price level of high-yield bonds. As the prices of high-yield bonds have risen, the yield spread has significantly decreased, which means that high-yield bonds have become more expensive compared to the past.

Looking at the past ten years, there have been periods when the spread was narrower than it is now. However, it is important to keep in mind that the current prices of high-yield bonds are relatively high compared to the past. I would like to introduce domestic listed ETFs that invest in U.S. high-yield bonds. There is the KODEX Asia U.S. High Yield Active ETF. This ETF primarily invests in high-yield bonds issued in U.S. dollars in the United States. The U.S.-listed Broad USD High Yield Corporate Bond ETF invests in approximately 170 bond issues, which allows for a broad diversification of credit risk. The average maturity of the invested companies is about 3.5 years, and the majority are U.S. companies. Additionally, the KODEX Asia U.S. High Yield Active ETF is a monthly dividend product.

After 2024, it is said that there will be an average of 60 won in six distributions. If this level is maintained, we can expect a distribution yield of about 7% per year, making it suitable for investors who desire a high level of cash flow each month. Additionally, the ETF does not release in dollars, which exposes it to fluctuations in the won-dollar exchange rate. In a strong dollar situation, investors can benefit from exchange gains. In terms of bond ETFs, we are investing approximately 48% in double B rated bonds and about 39% in higher rated bonds. I will provide detailed information about the Kodex High Yield Active ETF on the screen. So far, I have explained how to invest in American high yield bonds before interest rates decline. You can check more detailed information on our NH Investment & Securities app under stock investment information or investment content. Thank you.

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