High-yield bond spreads are currently hovering near all-time tight levels.

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Since 2000, high-yield bond spreads have averaged over 5% — today investors are earning roughly half that.

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These levels seem counterintuitive given the significant headwinds facing the global economy, which include:

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• Elevated interest rates & debt burdens

• Heightened geopolitical risk

• Rising inflation

• Tightening commercial lending

• Private credit liquidity and redemption pressures

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It could be argued that demand for public credit has risen over the last few quarters as investors rotate out of beleaguered BDCs into high-yield credit, resulting in the recent spread compression.

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Only time will tell if high-yield investors are currently buying the top. However, the risk/reward looks decidedly asymmetric: investing in high-yield credit at today's levels offers significantly greater downside than upside.