Voya High Yield Bond Fund Quarterly Commentary - 2Q25
Total return approach, investing in below investment grade corporate securities.
Portfolio review
The second quarter of 2025 opened with a surge in global trade tensions as the United States implemented sweeping tariffs on a broad range of trading partners. The move branded “Liberation Day,” caught markets off guard with tariff rates significantly higher than expected. Markets reacted swiftly and negatively: equities dropped into correction territory, credit spreads widened sharply, and U.S. Treasuries, which had been rallying on expectations of slower growth, sold off as investor sentiment toward U.S. assets deteriorated. Just days later, the U.S. administration announced a temporary reprieve, significantly reducing tariff rates to allow for negotiations. This reprieve, set to expire on July 9, 2025, helped stabilize markets. Although uncertainty remained, the easing of trade tensions allowed risk assets to recover gradually through the remainder of the quarter. Economic data released during the quarter painted a mixed picture, with 1Q25 gross domestic product (GDP) coming in at –0.5%, largely driven by the surge in imports, while the labor market remained resilient with solid nonfarm payrolls reports. Inflation continued its gradual descent but remained above the U.S. Federal Reserve’s 2% target. Against this backdrop, the Fed held interest rates steady throughout the quarter.
High yield (HY) bond spreads tightened by 57 basis points (bp) during the quarter to an option-adjusted spread (OAS) of 290 bp. After widening to 453 bp in April post the Liberation Day tariff sell-off, spreads quickly rebounded and ultimately finished the quarter at the tightest level since late-February. The notable rally in spreads resulted in a quarterly return of 3.53% for the Bloomberg High Yield 2% Issuer Cap Index, bringing year-to-date performance to 4.57%. Risk appetite improved, as the lower-quality segments of the market led the rally, with BB, B and CCC rated bonds posting returns of 3.44%, 3.62% and 4.01%, respectively. Issuance in the primary market was relatively muted given pick-up in volatility and higher overall yields, although it finished the quarter on a strong note. On the other hand, demand for HY softened early in the quarter but eventually rebounded in the last two months.
For the quarter, the Class I shares of the Fund outperformed the benchmark on a NAV basis. Outperformance was driven by security selection. Key positive contributors at an industry level included security selection within energy, cable and satellite and retailers. On a single name basis, the primary contributor was the avoidance of a few distressed issuers, including New Fortress Energy Inc. and Saks Fifth Avenue. Across ratings, the Fund benefited from strong security selection within BBB rated bonds, and to a lesser extent within CCC rated bonds, primarily reflecting an underweight to pockets of the market that were the most exposed to tariff risks.
Current strategy and outlook
The macro-outlook has improved for now but we expect the ongoing policy uncertainty to continue to weigh on business and consumer spending and investment over coming months. Corporate balance sheets and margins enter this environment in a good position, and an eventual shift in focus to more growth-friendly policies of tax cuts and deregulation should support growth, but neither businesses nor consumers are likely to respond with the usual level of spending, hiring and investment until the rules of the game are more clearly defined.
The technical environment remains largely supportive in HY. Factoring in fallen angels, June was the first meaningful net supply surplus in quite a while. However, demand continues to outpace as cash levels remain elevated. We expect spread volatility to continue until policy headlines and equity market volatility meaningfully subside. In addition, there remains a bifurcation between defensive names coveted by investors and businesses that are more at-risk to further tariff and other geopolitical uncertainty. In terms of positioning, we remain modestly overweight to single-B-rated bonds with a modest underweight in BB rated bonds and a continued underweight to the distressed tail of the market where idiosyncratic risk remains high. As macro and policy uncertainties remain top of mind, our overall sector positioning remains defensive.
Key Takeaways
The second quarter of 2025 opened with a surge in global trade tensions as the United States implemented sweeping tariffs on a broad range of trading partners.
For the quarter, the Class I shares of the Fund outperformed the benchmark on a net asset value (NAV) basis.
The macro-outlook has improved for now but we expect the ongoing policy uncertainty to continue to weigh on business and consumer spending and investment over coming months.