Systematic Insights: High yield – the opportunity we have been waiting for? | Insight Investment

The Bloomberg US Corporate High Yield Index’s average yield surpassed 8% in September. For investors that have been patiently waiting for an entry point, could this be a compelling entry point?

US high yield offers more than an 8% yield

US high yield credit spreads widened by +70bp and (duration-equivalent) Treasury yields have risen by +40bp since the start of September. This has pushed the all-in yield up by +1.1%, to its highest level since April 2025.

Over the last two decades, opportunities to lock in 8%-plus yields have tended to be fleeting (Figure 1).

Figure 1: All-in yields on US high yield are above 8% – will it be another fleeting opportunity?¹

Yields of 8% or higher have historically served as potentially attractive entry points. Over the last two decades, 1-year forward returns have averaged 13.3% when the starting yield was at least 8% (Figure 2).

Figure 2: When starting yields on US high yield have been above 8%, forward 1-year returns have been higher on average ¹

Over this 20-year period, when the starting yield was 8%+ the only time 1-year forward returns were negative was during the 2008 financial crisis. This was because yields continued rising sharply, well above 8% (albeit the market subsequently recovered in 2009).

Outside that period, investors that locked in 8%+ yields potentially benefited from both the income returns and price gains from falling yields over the subsequent 12 months.

Conclusion – could this be the opportunity many investors have been waiting for?

We believe that US Treasury bond yields offer strategic value, having risen materially over the last few months, and so may offer a tailwind to high yield credit investors.

Further, headline credit spreads currently trade at their widest levels since the start of the Iran war. While they have been impressively stable over the year so far overall, fortunes have diverged across sectors (particularly technology and communications), credit ratings and specific issuers (Figure 3). In our view, a systematic approach that seeks value across the full high yield universe may be well placed.

Figure 3: Diverging fortunes across sectors may spell opportunity for active strategies²

Many investors have been patiently waiting for potentially attractive high yield entry points. In our view, now could be a good time to consider allocating to the market.