What’s the Yield? Junk Bonds
Last time, we looked at prevailing effective yields and option-adjusted spreads (OAS) across the investment-grade bond universe—that is, bonds rated BBB to AAA.
Today, we’re heading down the credit risk ladder to examine the same metrics for their higher-yielding cousins: non-investment-grade bonds, more commonly known as junk bonds.
These securities offer more income, but also come with more credit risk—and understanding how that risk is priced is essential for income-focused investors.
We’ll be asking the same two questions:
What is the effective yield across various credit ratings?
What are the current option-adjusted spreads telling us about credit risk?
Effective Yield: BB – CCC Snapshot
The following chart illustrates the effective yield across three tiers of the junk bond universe:
● BB-rated (the highest rung of high yield)
● B-rated (mid-tier speculative grade)
● CCC-rated (the riskiest slice of the market)
Effective yield, again, captures the total return investors would receive if they held a bond to maturity, accounting for both coupon payments and price changes.
For high yield bonds, this figure essentially reflects how much compensation investors demand for taking on increased credit risk and default probability. As of April 2, 2025:
● BB bonds yield 6.17%
● B bonds yield 7.57%
● CCC bonds yield 13.16%
The current spread between BB and CCC is nearly 700 basis points, which is meaningful. That wide gap tells us the market is demanding a substantial premium to own the riskiest credits, especially given tightening financial conditions and growing economic uncertainty.
Looking back across the past three years, we see the yield curve for junk bonds has flattened and steepened at different points depending on macro conditions.
CCC yields spiked aggressively in late 2022 and early 2023 as recession fears built, before stabilizing through most of 2024.
But the recent move higher in CCC yields suggests a renewed wariness about low-quality borrowers—possibly driven by rising default risk or weaker investor appetite for leveraged balance sheets.
Meanwhile, BB and B yields have climbed more moderately, reflecting a general repricing of credit risk across the board but without the same distress signals seen in the CCC space.
The fact that BB yields remain in the low 6% range suggests some comfort at the top end of high yield, where issuers are often just one downgrade away from investment-grade territory.
For income-focused investors, the takeaway is clear: the yield is there—but so is the risk. The market is increasingly pricing in bifurcation within high yield, and the effective yield curve is flashing caution when you reach for the bottom shelf.
Options Adjusted Spread: B – CCC Snapshot
This following chart tracks the OAS across three tiers of the U.S. high-yield bond market:
● BB-rated (2.24%)
● B-rated (3.68%)
● CCC or below (9.28%)
OAS measures how much additional yield investors demand for taking credit risk beyond the risk-free rate, adjusting for any embedded call features.
In essence, it quantifies the risk premium priced into corporate bonds, allowing investors to compare credit across issuers and market conditions—regardless of duration or optionality.
In high-yield markets, OAS can act as both a credit risk barometer and a macro sentiment gauge. A widening spread typically reflects growing concern around default risk, liquidity tightening, or broader market stress.
From a three-year perspective, the most recent spike in CCC spreads to over 9% suggests a meaningful repricing of default risk at the lower end of the junk spectrum.
This comes after a period of relative calm through mid-2024, indicating that risk sentiment has shifted—likely driven by rising bankruptcies, deteriorating earnings in leveraged firms, or a more selective credit environment as the Fed holds rates steady at restrictive levels.
Meanwhile, B-rated spreads have ticked higher but remain under 4%, and BB spreads are still historically tight at just over 2%. That compression at the upper end of high-yield tells us the market still distinguishes sharply between “bad” and “worse.”
In other words, investors are comfortable taking moderate credit risk—but are demanding real compensation to touch anything truly distressed.
The takeaway: OAS tells a story the headline yield alone can’t. And that story right now is one of growing caution in lower-quality names while still rewarding higher-quality junk with relatively low risk premiums.
If you're reaching into this space for yield, know which end of the pool you’re swimming in—because CCCs are looking a lot deeper than they did a few quarters ago.
About Us
Jay D. Hatfield is CEO of Infrastructure Capital Advisors and is the lead portfolio manager of the Infrastructure Capital Bond Income ETF (NYSE: BNDS), InfraCap Small Cap Income ETF (NYSE: SCAP), InfraCap Equity Income Fund ETF (NYSE: ICAP), InfraCap MLP ETF (NYSE: AMZA), Virtus InfraCap U.S. Preferred Stock ETF (NYSE: PFFA), InfraCap REIT Preferred ETF (NYSE: PFFR) and private funds. Each month Infrastructure Capital hosts a monthly economic webinar; you can sign up to attend by visiting our website www.infracapfunds.com (important disclosures can also be found on the website). For a prospectus please reach out to us or visit the links above for each respective fund.
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