Systematic Insights: Thinking Global? Don’t Forget High Yield | Insight Investment

“Going global” has been one of the major themes of the year. Beyond thinking about global equities and global aggregate bonds, perhaps it is time for global high yield to join the conversation. 
  
Concerns about political risks, US debt dynamics and US exceptionalism have led many to consider global diversification. In our view, global high yield strategies may add an extra dimension of robustness to risk market allocations.

The Global high yield market may be deeper than you think

Global high yield bonds¹ (which exclude local currency emerging market bonds) tend to be issued in fewer currencies than investment grade bonds (currently US dollars, euros, sterling and Swedish krona).

But when segmented by country of risk, they are diversified across every region of the globe (Figure 1) and are less dominated by the US than aggregate bond (i.e. government and investment grade) markets are.

Figure 1: The $2.8trn global high yield market is diversified across all regions

Source: Bloomberg (Bloomberg Global High Yield Index), Insight, November 2025

Historically, global high yield has also offered higher risk-adjusted returns than US high yield (on a currency-hedged basis) and similar returns to pan-European high yield, but for significantly lower volatility (Figure 2).

Figure 2: Global high yield markets have offered compelling risk-adjusted returns relative to regional high yield markets

Source: Bloomberg (Bloomberg Global High Yield Index), Insight, November 2025. Past performance is not indicative of future results. Investment in any strategy involves a risk of loss which may partly be due to exchange rate fluctuations.

Investors often ask us if “going global” means sacrificing yields. After all, while US and euro high yield credit spreads are similar, euro high yield markets yield ~5.5% overall versus ~6.8% for the US market, owing to the differences in government yields.

But the answer is typically “no” on a currency-hedged basis, which boosts the yield on euro markets to ~7.4%. Hedging costs are determined by short-term interest rate differentials. Despite their reputation for being expensive, they can contribute value (Figure 3).

Figure 3: On a currency-hedged basis, euro high yield bonds offer higher all-in yield than US high yield

Source: Bloomberg (Bloomberg Global High Yield Index, Bloomberg Pan-European High Yield Index (Euro), Bloomberg Pan-European High Yield Index (Sterling)), Insight, November 2025. Hedging costs estimated using three-month currency forwards. Past performance is not indicative of future results. Investment in any strategy involves a risk of loss which may partly be due to exchange rate fluctuations.

The answer would, however, be “yes” on an unhedged currency basis, in which case FX volatility (rather than yield differentials) have historically been the dominant driver of returns. For euro-area investors, FX-hedging costs tend to be positive given the relatively low disposition of European Central Bank policy rates. However, going global can still offer improved yields versus a local approach. For example, sterling high yield currently offers a ~6.9% yield on an EUR-hedged basis, significantly higher than the ~5.5% on euro high yield.

Conclusion: global high yield may offer an increasingly robust source of yield

In our view, high yield markets are becoming increasingly robust. In the US high yield market for example, over 50% of the US market is BB rated, versus 38% 20 years ago. Around 20% of the market is secured, up from ~5% in 2020. Defaults have also been particularly mild since the pandemic, averaging less than 1% pa¹, while the market’s duration exposure has also declined over the same timespan.

In our view, expanding to a global high yield opportunity can improve the market’s robustness even further, offering a potentially compelling source of higher yields.