**High-Yield Bond Performance: A Review of the Last Quarter**
The BNY Mellon High Yield Fund outshone its benchmark, the ICE BofA U.S. High Yield Master II Constrained Index, in the second quarter of 2024. The fund’s success can be attributed to its strategic credit quality selection, particularly its overweight in Single Bs and underweight in Double Bs. Industry allocation also played a crucial role, with an underweight in Broadcasters, Cable, and Telecom contributing positively to performance.
Credit selection was another key factor, with strong picks in Telecommunications, Energy, and Services. However, weaker selection in Pharmaceuticals and Homebuilders partially offset these gains. The fund’s exposure to Bank Loans and Collateralized Loan Obligations (CLOs) also contributed meaningfully to its performance, while cash holdings provided a modest boost.
Despite a modestly negative return in Q2, the US High Yield market posted a 2.62% return in the first half of 2024, outperforming most other fixed-income assets. Prices and spreads remained largely unchanged from year-end, with coupons driving returns. Lower-quality CCC-rated credits outperformed the market for the full period, while higher-quality BB credits matched B returns for the first half.
**Current Market Conditions and Strategy**
Macroeconomic conditions remain supportive for credit, although the likelihood of central banks cutting interest rates in the second half of 2024 appears increasingly likely. Defaults are expected to remain below long-term averages, given solid credit fundamentals and robust capital market activity. Spreads remain historically tight, but overall yields remain above longer-term averages.
The fund remains overweight in Single Bs and has modestly reduced its lower-quality positioning in recent months. It has also increased its floating-rate exposure, given the yield advantage. Sector and security selection remain critical for performance, with a cautious approach to Cable, Broadcasting, and Telecom, and a more optimistic view on Financials, Utilities, and select Healthcare.
**Important Disclosures**
Investors should carefully consider the investment objectives, risks, charges, and expenses of a mutual fund before investing. Past performance is no guarantee of future results, and bonds are subject to various risks, including interest-rate, credit, liquidity, call, and market risks. High-yield bonds involve increased credit and liquidity risk than higher-rated bonds and are considered speculative in terms of the issuer’s ability to pay interest and repay principal on a timely basis.
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