A 350 basis point spread increase in USHY could erase a year of income gains, analysts warn, amid rising macro risks.
The iShares Broad USD High Yield Corporate Bond ETF (USHY) faces a potential 3-4% price decline if high-yield spreads widen beyond 350 basis points in the next 12 months. The fund, trading near $37, delivered an 8% total return over the past year, driven largely by coupon income rather than price appreciation.
USHY tracks the ICE BofA US High Yield Constrained Index, covering 1,900 bonds across BB to CCC ratings. While its 0.08% expense ratio makes it a low-cost option, its broad exposure leaves it vulnerable to spread volatility. The 10-year Treasury yield at 4.45% has been absorbed by coupon income, but further spread widening could pressure returns.
Investors seeking lower risk may shift to HYG, which focuses on BB-rated bonds and reduces CCC exposure. The fund’s performance hinges on the option-adjusted spread (OAS) of the broad high-yield index, currently offering little cushion against macro shocks.