What’s Next for High-Yield Bond Funds? 

When the Trump administration’s hawkish tariff announcements sparked chaos in global markets, it seemed the bull run was over for high-yield bond funds. However, they’ve started to rebound from the losing streak they saw in early 2025.

High-yield bond funds, which invest in riskier, below-investment grade bonds, outperformed other categories over the past several years, especially in 2024. However, since the start of 2025, global uncertainty sparked by President Donald Trump’s trade wars has sent stock markets tumbling. High-yield bonds, which often closely track the stock market, went with them.

At the category’s nadir on April 7, only five of the 162 US high-yield bond funds had positive returns, excluding funds with less than $100 million in assets. The overall category’s average year-to-date loss was 1.8%. Intermediate core funds had returned an average of 2.3% over the same time period.

The main catalyst for the downturn in high-yield bond funds was increased fear among investors that Trump’s tariffs will lead to a recession. Lower-quality bonds have a greater risk of defaulting in a recession than higher-quality bonds, and therefore see a fall in price as the probability of recession rises. “If we go into a recession, high yield probably has a little bit more to lose,” says John Lloyd, lead for multisector credit strategies at Janus Henderson Investors.

However, as Trump pulled back from his most extreme tariff threats, pausing some and lowering others, high-yield bonds resurged to overtake other major bond categories.

“You’re seeing more deals come through, and I think the market is getting a little bit more comfortable now,” says Lloyd.

As tariffs have begun to pose less of a threat to the economy, high-yield bonds have recovered. The average return for high-yield funds in 2025 has risen to 2.1%, as of May 19, with not a single one of the 162 names in the category currently showing negative year-to-date returns.

The high-yield bond market is more correlated with equities than other categories of bonds, such as Treasuries, Lloyd says. Usually when stocks fall, less-risky bonds rise, and vice versa, demonstrating the advantages of a well-balanced portfolio, especially in times of volatility. The year-to-date performance for the Morningstar US Market Index has risen from a 5.0% loss at the end of April to a 1.8% gain as of the close of markets on May 19.

The largest high-yield bond fund, the $27 billion BlackRock High Yield Bond Fund BRHYX, did slightly better than average. The fund was down 2.0% in the year to date on April 7, while it has returned 2.7% as of May 19. The second-largest, the $24.3 billion Vanguard High-Yield Corporate Bond Fund VWEAX, was down 0.4% in the year to date by April 7, while it is now up 3.0%. Meanwhile, the year-to-date return for intermediate-core bond funds (the largest category of bond funds) has fallen to 1.8%.