Credit Edge: Vanguard Has Some Junk Bond Reservations (Podcast)

Vanguard’s head of high-yield corporate credit, Michael Chang, said the firm is wary of junk bonds as spreads are tight and yields are only about average, leaving little room for negative surprises; he judged it “not the best time to be investing in high yield.” Vanguard is instead favoring debt from utilities and consumer-staples issuers and is looking to extract extra yield via leveraged loans and liability-management exercises. The commentary from an $11 trillion asset manager underscores a cautious positioning in high yield and highlights a search for yield in lower-risk credit niches and tactical credit strategies.

Analysis

Vanguard's head of high-yield corporate credit, Michael Chang, said on Nov. 20, 2025 that the $11 trillion asset manager is wary of junk bonds because "spreads are pretty tight" and "yields are about average," concluding it is "not the best time to be investing in high yield." These comments signal a clear tactical de-risking of high-yield exposure driven by compressed compensation for credit risk and limited room for negative surprises.

Vanguard is instead favoring debt from utilities and consumer-staples issuers and is seeking incremental yield through leveraged loans and liability-management exercises. That positioning reflects a preference for lower-beta, more defensive credit niches and opportunistic, event-driven ways to pick up spread or yield premium without broad exposure to high-yield market beta.

The tone is moderately negative for the high-yield market and could weigh on demand for junk bonds while supporting relative performance of defensive corporate credit and loan strategies. Investors should treat current spread levels as a risk signal and focus on capital preservation and event-driven allocations until spreads meaningfully reprice to compensate incremental default or macro risk.

Key Decisions for Investors

• Trim or avoid initiating broad high-yield positions while spreads remain tight and yields are only average, prioritizing capital preservation
• Increase selective exposure to corporate debt of utilities and consumer-staples issuers as a defensive source of yield in lieu of broad junk-bond allocations
• Consider tactical allocations to leveraged-loan strategies and instruments that can harvest yield from liability-management exercises, and establish explicit spread-widening thresholds for redeployment