Income investors who prioritize current cash flow over future capital appreciation should understand that higher yield rarely comes without trade-offs. Regardless of whether that income comes from options premiums, dividend payments or bond coupons, investors must typically give up something in return, whether that is upside potential, tax efficiency, liquidity or additional risk.
Consider covered calls. Owning 100 shares of a stock allows an investor to sell call options against that position in exchange for immediate premium income. However, doing so effectively caps some future price appreciation. Whether that premium adequately compensates an investor depends on a variety of factors, including the option’s strike price, time to expiration and implied volatility.
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The same principle applies to dividend investing. Companies that distribute a large portion of their earnings through quarterly or monthly payouts can provide an attractive income stream. However, dividends are not free money. In taxable accounts, each dividend may create a tax liability, and on the ex-dividend date, a company’s share price typically adjusts downward.
Bond investors face a similar dynamic. Those seeking higher income may be tempted to move beyond investment-grade bonds and into high-yield, or “junk,” bonds. These securities carry credit ratings below BBB and compensate investors with higher coupon payments. However, those higher yields exist because investors are accepting a greater risk that the issuer may be unable to repay its debt obligations.
The difference in default risk can be substantial. According to S&P Global, the three-year cumulative default rate for BBB-rated companies is just 0.9%. For BB-rated issuers, the highest tier of non-investment-grade debt, that figure rises to 4.2%. Moving down to B-rated bonds triples the default rate to 12.4%, while CCC-rated issuers experience a staggering 45.7% default rate over the same period.
Diversification can help mitigate some of this risk. By spreading capital across high-yield bonds issued by different companies, sectors and credit ratings, investors can reduce the impact of any single default.
The challenge is that building a diversified portfolio of individual high-yield bonds can be difficult. Unlike Treasury securities, corporate bonds often trade with less transparent pricing and poorer liquidity. For many investors, outsourcing the work to a high-yield bond fund may be the more practical solution.
Available as both mutual funds and exchange-traded funds, or ETFs, these vehicles either replicate broad high-yield bond indexes or rely on active managers to select securities based on fundamental research.
In a fund structure, investors gain diversification, professional management, monthly income distributions instead of semiannual bond coupons, and, in the case of ETFs, intraday liquidity and portfolio transparency.
Here are seven of the best high-yield bond funds to buy today:
| Fund | Expense Ratio | 30-Day SEC Yield |
| iShares iBoxx $ High Yield Corporate Bond ETF (ticker: HYG) | 0.49% | 6.5% |
| State Street SPDR Bloomberg High Yield Bond ETF (JNK) | 0.40% | 6.6% |
| Schwab High Yield Bond ETF (SCYB) | 0.03% | 6.9% |
| BondBloxx USD High Yield Bond Sector Rotation ETF (HYSA) | 0.55% | 6.3% |
| BondBloxx BB Rated USD High Yield Corporate Bond ETF (XBB) | 0.20% | 5.7% |
| BondBloxx B Rated USD High Yield Corporate Bond ETF (XB) | 0.30% | 6.9% |
| BondBloxx CCC Rated USD High Yield Corporate Bond ETF (XCCC) | 0.40% | 11.8% |
iShares iBoxx $ High Yield Corporate Bond ETF (HYG)
“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.” If you are unsure about repayment, it makes sense to demand a higher yield.
HYG illustrates this principle clearly. This high-yield bond ETF spans 1,300 holdings, 57% of which are rated BB, 32% B and 9% CCC. Consumer discretionary sector companies make up the bulk of its exposure, at 17.8%. After deducting a 0.49% expense ratio, investors currently get paid a 6.5% 30-day SEC yield. HYG also has an active options chain, allowing investors to sell covered calls for additional income.
State Street SPDR Bloomberg High Yield Bond ETF (JNK)
“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.” JNK is another long-standing option, with $7.7 billion in assets under management.
This high-yield bond ETF passively tracks the Bloomberg High Yield Very Liquid Index, which helps JNK maintain a low 30-day median bid-ask spread of 0.01%. JNK is also slightly more affordable than HYG, with a 0.4% expense ratio, but it has a less active options chain with lower trading volume and poorer open interest. The ETF currently pays a 6.6% 30-day SEC yield with monthly distributions.
Schwab High Yield Bond ETF (SCYB)
A general rule of thumb in the ETF industry is that greater complexity in the underlying securities often results in higher expense ratios. Some asset managers, however, are attempting to disrupt that pricing model. One example is SCYB, which tracks the ICE BofA US Cash Pay High Yield Constrained Index for an ultra-low 0.03% expense ratio, rivaling the fees of some aggregate bond index funds.
SCYB has proven highly popular since launching in July 2023 and now manages more than $2.5 billion. By keeping fees exceptionally low, the fund is able to pass more income through to investors. SCYB’s current 6.9% 30-day SEC yield is higher than both HYG and JNK, while maintaining broadly comparable exposures for credit quality and interest rate sensitivity.
BondBloxx USD High Yield Bond Sector Rotation ETF (HYSA)
“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.”
HYSA delivers an actively managed high-yield bond strategy at a 0.55% expense ratio. This ETF uses a “fund of funds” structure to tactically allocate between different BondBloxx high-yield bond funds based on fundamental analysis. HYSA currently pays a 6.3% 30-day SEC yield. However, liquidity for this ETF is poorer than HYG and JNK due to a wider 0.2% 30-day median bid-ask spread.
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.” Opting for a pure BB-exposure high-yield bond ETF like XBB may be a reasonable compromise for investors trying to balance yield and risk.
XBB’s portfolio of about 1,000 high-yield bonds is rated B1 through B3 based on an average from the three major ratings agencies: Moody’s, S&P Global and Fitch Ratings. To ensure diversification, bond issuers are capped at 2% each, which ensures a more balanced representation across sectors. After deducting a 0.2% expense ratio, investors currently receive a 5.7% 30-day SEC yield with monthly payouts.
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.” For this segment of the high-yield bond market, BondBloxx offers XB at a 0.3% expense ratio. The ETF currently pays a 6.9% 30-day SEC yield.
It is important to remember that XB’s SEC yield is quoted before taxes. Yield from XB is generally taxed as ordinary income at both the federal and state level. Depending on an investor’s tax bracket, that can materially reduce after-tax returns. As a result, many investors may prefer to hold high-yield bond funds such as XB inside tax-advantaged accounts like a Roth IRA.
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. This level of yield matches the income potential from assets such as mortgage real estate investment trusts (mREITs) and business development companies (BDCs). XCCC pays an 11.8% 30-day SEC yield after deducting a 0.4% expense ratio.
XCCC has delivered a 10.3% annualized total return over the trailing three-year period, rivaling some equity funds. Investors should remember, however, that this performance occurred during relatively stable credit conditions. In a recession, CCC-rated issuers can experience elevated default rates, which may result in substantial losses and significant declines in the ETF’s net asset value.
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7 of the Best High-Yield Bond Funds to Buy Now originally appeared on usnews.com
Update 06/09/26: This story was previously published at an earlier date and has been updated with new information.
