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US high yield draws renewed interest from Asian insurers and pension funds

Heather Ng
Strong incomes, stable balance sheets and growing scrutiny of private credit are driving Asian institutional investors back to the US high yield market.
US high yield draws renewed interest from Asian insurers and pension funds
Key Points
  • Insurers and pension funds are increasing US high-yield allocations, driven by attractive 6.5%–8.5% all-in yields, shorter duration protection and favorable liquidity over private credit.
  • Widening dispersion in lower-rated credits and distressed issuers is creating selective opportunities for active fundamental managers despite overall tight spreads.
  • Heavy corporate borrowing for AI infrastructure is driving high-quality bond issuance and attractive entry points, balanced against policy and project-financing risks.
Institutional investors, particularly insurers and pension funds, have been steadily increasing allocations to the $1.477 trillion US high-yield bond market in recent years, attracted by all-in yields of 6.5% to 8.5%, shorter duration profiles and stronger liquidity than many private credit strategies.
 
While overall credit spreads remain historically tight, a growing performance dispersion among lower-rated issuers and a massive wave of new corporate borrowing tied to artificial intelligence infrastructure are creating a nuanced landscape for investors looking to lock in income and capitalise on market dislocations.

High-yield bonds account for roughly $1.477 trillion of the broader $12.1 trillion US corporate bond market, according to data from Securities Industry and Financial Markets Association (SIFMA) and other index providers. Institutional demand through mutual funds, insurance portfolios and ETFs has been an important source of support for the asset class.

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