What HYG actually is
HYG holds high-yield corporate bonds, sometimes called “junk bonds”. These are issued by companies whose credit rating is below investment grade, so they must pay more interest to attract buyers.
What is inside
Hundreds of bonds from companies across many industries, with a mix of maturities. They tend to behave more like stocks than like government bonds in a downturn, because the risk of default rises.
Distributions
HYG pays monthly, and the yield is higher than investment-grade bond funds. That extra yield is compensation for risk, not free income. The share price can fall significantly in a recession.
What to keep in mind
- Default risk. Weaker companies can fail to pay.
- Stock-like swings. Prices can drop with the market.
- Liquidity. Bonds can be harder to sell in stress.
Quick take
HYG offers higher income than safer bonds, with credit risk to match. Keep it a limited part of a portfolio.