One notable trend across both mutual funds and exchange-traded funds (ETFs) is the growing prevalence of core-plus fixed-income strategies. These funds operate under a two-part mandate.
The “core” sleeve is typically invested in diversified, investment-grade bonds designed to provide stability and consistent participation in bond market returns. The “plus” sleeve is where managers seek incremental return by allocating to higher-risk assets, most commonly high-yield corporate bonds.
High-yield bonds are defined as those rated below BBB by the major credit rating agencies, with BBB representing the lowest rung of investment-grade credit. That distinction carries meaningful implications for default risk and recovery rates.
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“The bond that you’re buying represents the creditworthiness of whomever you’re lending that money to,” says Michael Wagner, co-founder and chief operating officer at Omnia Family Wealth. “A high-yield bond is like making a loan to a company that might have more risk — the risk that you’re not going to be paid back at all.”
The yield hierarchy in fixed income is relatively straightforward. Investment-grade corporate bonds generally yield more than U.S. Treasurys of comparable maturity, while high-yield bonds offer higher yields than investment-grade corporates with similar maturity.
“The U.S. high-yield bond market offers attractive yield and relative value opportunities for investors evaluating where to invest in fixed income,” says JoAnne Bianco, partner and senior investment strategist at BondBloxx. “Credit fundamentals for high-yield issuers are strong, supported by the resilient U.S. economy, healthy balance sheets, manageable debt maturities and lower interest rates.”
When packaged inside a fund structure, whether an ETF or a mutual fund, these exposures become easier to evaluate using standardized metrics such as average credit rating for default risk, duration for interest-rate sensitivity and the 30-day SEC yield, which provides a standardized snapshot of income potential after fees over a one-month period.
One important consideration is taxes. Income from high-yield corporate bond funds is taxed as ordinary income at both the federal and state level. For investors in higher tax brackets, that can materially reduce after-tax returns. As a result, tax-sheltered accounts such as Roth IRAs and 401(k)s are often the most appropriate place to hold these funds.
Here are seven of the best high-yield bond funds to buy now:
| Fund | Expense ratio | 30-day SEC yield |
| Vanguard High-Yield Active ETF (ticker: VGHY) | 0.22% | 6.0% |
| Xtrackers USD High Yield Corporate Bond ETF (HYLB) | 0.05% | 6.5% |
| BondBloxx BB Rated USD High Yield Corporate Bond ETF (XBB) | 0.20% | 5.4% |
| BondBloxx B Rated USD High Yield Corporate Bond ETF (XB) | 0.30% | 6.4% |
| BondBloxx CCC Rated USD High Yield Corporate Bond ETF (XCCC) | 0.40% | 11.3% |
| VanEck Emerging Markets High Yield Bond ETF (HYEM) | 0.40% | 6.5% |
| VanEck High Yield Muni ETF (HYD) | 0.32% | 4.4% |
Vanguard High-Yield Active ETF (VGHY)
“I think retail investors should generally access high-yield bonds through a pooled investment vehicle like a mutual fund or ETF,” Wagner says. “It’s very difficult for a regular retail investor to analyze the high-yield bond market, and you really have to do a lot of due diligence and credit-risk analysis on these companies.” One relatively affordable option is VGHY, which Vanguard offers at a 0.22% expense ratio.
This actively managed bond ETF currently holds a total of 344 high-yield bonds averaging a 2.8-year duration, implying modest interest-rate sensitivity. The majority of the ETF is allocated to BB- and B-rated bonds, with only an 8.9% allocation to CCC-or-lower-rated securities. VGHY currently offers a 6% 30-day SEC yield and pays on a monthly basis, as opposed to semi-annual coupons from individual bonds.
Xtrackers USD High Yield Corporate Bond ETF (HYLB)
VGHY’s 0.22% expense ratio is very competitive for an actively managed high-yield bond fund, but investors who are comfortable with passive indexing can reduce costs even further. A good example is HYLB, which tracks the Solactive USD High Yield Corporates Total Market Index for a much lower 0.05% expense ratio. The ETF currently pays a 6.5% 30-day SEC yield, 0.5% higher than VGHY.
HYLB’s underlying bond portfolio is also well diversified across sectors. Rather than being heavily concentrated in traditional high-yield areas such as energy or materials, the fund maintains a more balanced allocation across consumer discretionary, communications, financial and industrial issuers. As with most bond funds, HYLB pays monthly distributions as opposed to semi-annual coupons.
BondBloxx BB Rated USD High Yield Corporate Bond ETF (XBB)
“The BB rating category represents the highest-rated non-investment-grade bonds in the U.S. high-yield bond universe,” Bianco says. “This rating category exhibits the highest balance sheet strength in high yield, and the lowest historical default rate.” Investors can target this segment of the high-yield bond market via a focused ETF like XBB, which charges a 0.2% expense ratio and pays a 5.4% 30-day SEC yield.
XBB passively tracks the ICE BofA BB U.S. Cash Pay High Yield Constrained Index and holds a diversified portfolio of 1,061 bonds. Within the BB rating itself, credit quality is further segmented into BB1, BB2 and BB3, which adds more granularity around issuer risk and balance-sheet strength. In XBB’s case, roughly 41% of the portfolio sits in BB3 bonds, 36% in BB2 and 22% in BB1.
BondBloxx B Rated USD High Yield Corporate Bond ETF (XB)
“B-rated corporate bonds represent the ‘goldilocks’ middle tier of the U.S. high-yield bond market,” Bianco explains. “Their attractiveness reflects the combination of elevated coupon income, manageable credit risk and broad investor demand.” BondBloxx’s targeted ETF for the B-rated segment is XB. This ETF tracks the ICE BofA Single-B US Cash Pay High Yield Constrained Index for a 0.3% expense ratio.
That higher credit risk is reflected directly in the fund’s income profile. XB currently pays a 6.4% 30-day SEC yield, which is 100 basis points, or one percentage point, higher than the BB-focused XBB. The trade-off is default risk: S&P Global data show that B-rated bonds have posted a three-year cumulative default rate of about 12.4%, three times higher than BB-rated bonds, at around 4.2%. The extra yield is not a free lunch.
[Read: 5 Great Fixed-Income Funds to Buy for 2025]
BondBloxx CCC Rated USD High Yield Corporate Bond ETF (XCCC)
“Within the high-yield corporate bond category, income from CCC-rated corporate bonds has averaged 10% annually over the past 20 years,” Bianco explains. Investors can access CCC-rated bonds with XCCC. This ETF currently pays an 11.3% 30-day SEC yield, but investors should be aware that in an economic downturn both the distribution and the ETF’s net asset value could fall sharply.
S&P Global default data show that the riskiest segment of the high-yield bond market — CCC-rated bonds — carries a three-year cumulative default rate of roughly 45.7%. Many issuers in this category are financially distressed. Some may ultimately enter Chapter 7 or Chapter 11 bankruptcy proceedings, where recoveries for bondholders can be minimal and, in some cases, amount to pennies on the dollar.
VanEck Emerging Markets High Yield Bond ETF (HYEM)
High-yield bonds are not limited to U.S. issuers. Companies in international markets, particularly in emerging-market countries, often offer similar yield profiles but with added layers of credit, liquidity and currency risk. Accessing these bonds directly can be difficult for individual investors due to thin trading, settlement issues and foreign-exchange constraints. HYEM provides a more practical route.
“HYEM is the only U.S.-listed ETF providing pure exposure to emerging-market high-yield corporate bonds,” says William Sokol, director of product management at VanEck. “The emerging-market high-yield corporate market also tilts towards higher-rated bonds versus the U.S. high-yield market, meaning that investors are getting higher compensation for less credit risk.” HYEM pays a 6.5% 30-day SEC yield.
VanEck High Yield Muni ETF (HYD)
Most municipal bond funds are exempt from federal income taxes, which makes them especially attractive to investors in higher tax brackets. The trade-off is that most municipal issuers carry investment-grade credit ratings, typically in the A and AA range, which keeps yields relatively low. In contrast, HYD earns higher federally tax-exempt income in exchange for taking on greater credit risk.
“What distinguishes HYD is the index’s deliberate crossover construction and built-in risk controls,” says Michael Cohick, director of product management at VanEck. “It combines 70% high yield with a 30% allocation to investment grade to support liquidity, while capping unrated bonds at 30%, zero-coupon bonds at 5% and U.S. territories at 10%, with monthly rebalancing.” HYD pays a 4.4% 30-day SEC yield.
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7 of the Best High-Yield Bond Funds to Buy Now originally appeared on usnews.com
Update 02/02/26: This story was previously published at an earlier date and has been updated with new information.
