Ask the Manager: Ben Spalding on Integrating High Yield Bonds into an Effective Portfolio Allocation

It’s true that credit spreads on high yield bonds are currently quite tight by historical standards. Spreads are presently around 300 basis points based on the Bloomberg U.S. High Yield Index, while the 15-year average is closer to 450 basis points. This indicates that the market is pricing in lower expected defaults compared to historical averages and, therefore, requires less risk premium above the “risk-free” rate of U.S. Treasuries. Currently, high yield bonds are yielding about 7%, which is an enticing level for income-oriented investors.

What is the effect of private credit funds on the (public) high yield market? Is it reducing supply to the market?

Risker, smaller, or otherwise more complex deals are increasingly going to private credit instead of being issued in the public high yield market. As a result, the public market is skewing more toward higher-quality issuers. This has likely contributed to some of the tighter spreads we’re seeing compared to historical averages.

Despite the emergence of private credit, we still see a healthy supply of high yield debt coming to public markets. Through the end of September 2025, year-to-date gross new-issue volume totaled $268 billion, up 12% from the $240 billion recorded over the same period in 2024. 

How should investors think of high yield bonds as a portfolio diversifier?

High yield bonds, especially in a broad-based ETF context, are a strong asset class for providing portfolio diversification. Historically, high yield bonds have had a moderate correlation with the S&P 500 Index and a very low correlation with Treasuries. This means that high yield allocations can often help smooth out returns in a multi-asset portfolio. Furthermore, high yield has historically delivered Sharpe ratios similar to those of equities and investment-grade bonds, but with lower volatility than equities. My colleague Jason Chen from the DWS Research Institute conducted excellent analysis on this topic in his paper “High Yield Bonds for Allocators”, if you’d like to learn more.

How should investors utilize Xtrackers High Yield ETFs

At Xtrackers, our high yield offerings range from broad market exposure to short duration, as well as more tailored exposures that target either the higher- or lower-rated credit buckets within the high yield space. By using a combination of Xtrackers high yield ETFs, investors can fine-tune their credit exposure and adjust their preferred credit risk up or down depending on their particular view.

Our flagship product is the Xtrackers USD High Yield Corporate Bond ETF

, a solution for income-oriented investors seeking exposure to US high yield corporate bonds. With nearly $4 billion in AUM (as of 9/30/2025), HYLB offers a diversified, credit-focused investment approach. HYLB is one of the largest and lowest cost ETFs in its category with an expense ratio of just 0.05%, which helps preserve investor returns over time.

ETF Inception Date: 12/7/2016

Glossary

Basis Point: A basis point is one hundredth of a percent, so 100 basis points is equivalent to 1%.

Bloomberg U.S. High Yield Index: A benchmark that tracks the performance of below investment-grade corporate bonds issued in the U.S. dollar-denominated market.

Correlation: The relationship between two financial assets, indicating how they move in relation to each other.

Risk-Free Rate: The theoretical return on an investment with zero risk, often represented by the yield on government securities such as U.S. Treasury bills.

S&P 500 Index: An index that includes 500 leading companies spanning all sectors of the U.S. stock market, covering approximately 80% of the U.S. equity market.

Important Disclosures

The brand Xtrackers represents all systematic investment solutions. Xtrackers ETFs ("ETFs") are managed by DBX Advisors LLC (the "Adviser") and distributed by ALPS Distributors, Inc. (“ALPS”). The Adviser is a subsidiary of DWS Group GmbH & Co. KGaA and is not affiliated with ALPS. Shares are not individually redeemable, and owners of Shares may acquire those Shares from the Fund, or tender such Shares for redemption to the Fund, in Creation Units only. The brand DWS represents DWS Group GmbH & Co. KGaA and any of its subsidiaries such as DWS Distributors, Inc., which offers investment products, or DWS Investment Management Americas, Inc., and RREEF America L.L.C., which offer advisory services.

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