What a classic beer ad reveals about the high-yield market today

Back in the 1970s, Miller Lite became famous for an advertising campaign that featured sports stars arguing whether the best part about the beer was that it was either “Less filling!” or “Tastes great!”

The real message, of course, was that both were true. 

If investors were arguing about the merits of high-yield bonds today, they might squabble over “Less risk!” and “More income!” Relative to history, both are true, which are two reasons why Vanguard launched Vanguard High-Yield Active ETF (VGHY) in September.

VGHY is designed to provide compelling total return and income versus investment-grade¹ bonds, but with an active mandate to try to sidestep the credit downsides that can still lurk in the high-yield space.

Less risk?

Just as beer advertising has evolved, so has the high-yield market, which has brewed a stronger risk profile:

• The percentage of CCC rated issuance in the high-yield market—a very risky tranche—has declined from 23% in 2008 to 10% as of October 31, 2025.
• Meanwhile the percentage of BB rated—the least risky slice—has jumped from 38% in 2008 to 56% as of October 31, 2025.

Why have so-called “junk” bonds improved? Because the frothier loans are now issued through private credit or leveraged loans, taking them out of the traditional publicly traded high-yield universe.

In addition to stronger credit ratings, high yield has a much shorter duration, making the category less susceptible to the volatility of higher rates.

• The duration of the Bloomberg U.S. High Yield 2% Issuer Capped Total Return Index is 2.9 years as of October 31, 2025, which is 35% lower than it was in 2008, according to Bloomberg data.

More income

High yield remains one of the few places you can earn an attractive yield. The following chart shows the income available among the credit ratings strata: 

Source: Ycharts, as of October 31, 2025. High-yield market is represented by ICE BofA US High Yield Index.

It is true that spreads—that is, the yield above Treasuries of comparable maturity—remains near historic lows.

Nonetheless, investors should know that as long as the economy remains healthy, spreads can remain compressed for long periods of time. When spreads eventually do widen, some of that widening is likely to be due to dropping U.S. Treasury yields in addition to rising yields on corporate bonds.

Why active?

While the high-yield market looks smooth on the surface, there is churning underneath. Some companies are struggling, and the market can be divided between the haves and have-nots.

The conundrum in the high-yield market is that, naturally, in places where income can be tapped in large quantities, the default risk is highly elevated. That’s where an active team can work to identify which issuers face serious risk of default and which may be navigating cyclical or temporary challenges.

Vanguard’s research confirms that the dispersion within high yield is the space where active managers can add value. In other words, greater variation around benchmark averages means greater opportunities to identify mispriced market segments or bonds—and the potential to generate excess returns.

Why Vanguard?

As always with Vanguard, low cost is one answer. For VGHY, the expense ratio is 0.22%, which is the lowest expense ratio among active high-yield bond ETFs.² That offers two advantages:

• Opportunistic managers: Because we don’t face a high-fee hurdle, we don’t have to always have risk-on, but our strategies can emphasize a savvy risk-aware³ security selection over concentrated factor bets—seeking repeatable excess return without equity‑like volatility.
• Keep more: As always, low fees mean that your clients get to keep more of their return, a basic principle at Vanguard. 

Vanguard has a dedicated 17-person high-yield team, which includes a 12-member research section and five portfolio managers and traders. Having a deep bench of experts is a pillar of Vanguard active fixed income, so that we can offer institutional quality bond funds.⁴

That large team, in coordination with the entire active fixed income department, means we can also stretch into investment-grade bonds and leveraged loans when valuations in those spaces are attractive enough.

All this means is that for your clients, VGHY offers the potential for high income, increased total return, and diversification, along with expert active management to guide the way. That’s a recipe that will taste great.

1 Investment-grade bonds are those whose credit ratings are among the highest by independent bond-rating agencies.

2 Tied for the lowest expense ratio among active high-yield bond ETFs, according to Morningstar data as of October 31, 2025.

3 Vanguard’s active fixed income team looks to use strategies that result in a high information ratio, which measures how efficiently a strategy converts active risk into excess return relative to a benchmark.

4 "Institutional quality" in this context is meant to convey a level of professional rigor and expertise combined with low costs. 

For more information about Vanguard ETFs, visit advisors.vanguard.com or call 800-997-2798 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

All investing is subject to risk, including possible loss of principal.

Diversification does not ensure a profit or protect against a loss.

Bond funds are subject to interest rate risk, which is the chance bond prices overall will decline because of rising interest rates, and credit risk, which is the chance a bond issuer will fail to pay interest and principal in a timely manner or that negative perceptions  of the issuer’s ability to make such payments will cause the price of that bond to decline.High-yield bonds generally have medium- and lower-range credit quality ratings and are therefore subject to a higher level of credit risk than bonds with higher credit quality ratings.

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