Thinking differently about high-yield bonds: A senior-secured bond strategy for income investors

• Barings Global Senior Secured Bond Fund offers actively managed exposure to senior secured high-yield bonds.
• Senior secured bonds rank higher and benefit from collateral backing.
• The fund’s portfolio is diversified, with a tilt toward higher-rated BB/B buckets. It is mainly exposed to issuers from North America and Europe.
• The fund’s latest distribution yields (annualised) were around 8.9% for its USD share class, and 5% for its SGD share class.
• The fund has delivered a solid track record, consistently outperforming many of its high-yield bond fund peers on a risk-adjusted basis.

The Barings Global Senior Secured Bond Fund offers investors an actively managed approach to the high-yield bond universe. Active management is especially relevant today, as high-yield bonds continue to offer attractive income, but tighter credit spreads mean investors need to be more disciplined in how they take on exposure.

For investors seeking high-yield income, the fund’s senior secured approach may provide a more selective route into the high-yield bond segment. The USD share class also currently offers an annualised distribution yield of close to 9%. Read on for more details on this senior secured strategy, which seeks to balance income generation with structural protection through seniority, collateral backing, and rigorous bottom-up credit selection.

About the Barings fund: High income with structural protection

The Barings Global Senior Secured Bond Fund is an actively managed fixed income fund that aims to provide high current income generation and, where appropriate, capital appreciation. The fund primarily invests in senior secured high-yield corporate bonds within North America and Europe.

In simpler terms, the fund still takes sub-investment-grade credit risk. However, it seeks to improve downside protection by investing mainly in bonds that sit higher in the capital structure and benefit from collateral backing.

Bottom-up credit selection is the primary driver behind the fund’s investment process. This includes detailed fundamental credit analysis, credit selection, and relative value assessment. Barings also assesses each issuer’s capital structure and the strength of available collateral. This bottom-up approach is supplemented by a top-down overlay from Barings’s Global High Yield Allocation Committee, which determines the regional allocation between North America and Europe. These decisions are based on regional fundamentals, technical factors and geopolitical considerations.

The result is a strategy that is not simply taking broad high-yield exposure. Instead, the fund seeks to access high-yield income through a more structured approach, with an emphasis on credit selection, capital-structure positioning and collateral quality.

What are senior secured bonds?

Senior secured bonds rank higher in a company’s capital structure and are backed by collateral. These bonds are commonly associated with the high-yield market, as lower-rated companies may pledge collateral to improve access to funding, reduce borrowing costs, and make their debt more attractive to investors. By contrast, higher-rated issuers are less likely to issue secured bonds, as they can typically access funding at affordable rates without pledging specific assets.

The key benefit of secured bonds is higher priority of claims and hence stronger creditor protection, in the event(s) of default or restructuring. Collateral does not remove default risk, but it can give bondholders a stronger negotiating position during restructuring. Barings cites Moody’s historical data showing that defaulted senior secured bonds had a recovery rate of 61.4% from 1987 to 2024, compared with 47.0% for senior unsecured bonds and 27.9% for subordinated bonds.

Individual credit selection is important, especially as not all collateral is equal. Collateral quality can vary meaningfully depending on the type of asset, lien priority, and the degree of control bondholders have over pledged assets. Tangible assets such as real estate may offer a different recovery profile from intangible assets such as trademarks.

Why active management matters today

High-yield bonds remain relevant for investors seeking higher income within their fixed income portfolios. Even after recent spread tightening, this segment continues to provide a yield pickup over investment-grade (Chart 1).

However, the case for high-yield bonds today is more balanced than outright positive. Credit spreads have narrowed over recent years (Chart 2), while the yield pickup over investment-grade bonds has also declined (Chart 3). This partly reflects better fundamentals, as the high-yield market today has a healthier rating mix, with higher exposure to BB-rated issuers and lower exposure to CCC-rated issuers on a broad market level. Net leverage and interest coverage ratios also remain around pre-COVID levels, suggesting no broad credit stress. On balance, the tighter valuations today mean that returns are likely to come from coupon income and credit selection, rather than from further meaningful spread tightening.

Hence, we think investors who want high-yield income should focus on more selective strategies, including those with stronger risk management features. This is where Barings’s senior secured strategy may be relevant: it allows investors to retain exposure to high-yield income, while potentially improving creditor protection through seniority and collateral backing.

Chart 1: High-yield bonds continue to provide some yield pickup over investment-grade bonds

Chart 2: Credit spreads have tightened in recent years

Chart 3: Yield pickup over investment-grade bonds has also narrowed

Latest portfolio metrics: Diversified with a BB/B-heavy rating profile

(Unless otherwise stated, dollar figures are in US Dollars [USD].) 

As of 30 April 2026, the fund’s size was approximately $3.3b, spread across 195 issuers. Barings disclosed that the fund held around 322 bond issues as of March, though the latest available April data did not include a bond-issue count. The fund appears fairly diversified by issuer, as its top 10 issuers each accounted for around 1.1% to 1.7% of the portfolio, totalling around 13% (Table 1).

The fund’s average credit rating was BB-, with most of its holdings in the BB or B bucket. This is expected of a strategy focused on sub-investment-grade credit. Investment-grade holdings accounted for only 4% of the fund, while exposure to weaker CCC-rated and unrated credits remained limited. Overall, the portfolio remains firmly high-yield in nature, but with controlled exposures to the lowest-rated segments, in line with our measured view on global high-yield bonds (Chart 4).

Geographically, the fund is mainly exposed to North America and Europe, consistent with its stated mandate and the nature of the senior secured high-yield universe. As of April, North America accounted for around 61% of the fund, while Europe accounted for around 32%. The fund’s geographical allocation has not shifted significantly over time, generally staying around 60% for North America and slightly above 30% for Europe (Chart 5). While the fund has flexibility to adjust regional allocations through its top-down overlay, we expect these shifts to remain measured. The fund’s primary return driver remains bottom-up credit selection, rather than large macro-driven regional allocation calls.

Table 1: Top 10 issuers of Barings fund

Chart 4: Fund focuses on higher-rated segments within high-yield (BB and B)

Chart 5: Barings fund has exposures to both North America and Europe

High yields with limited duration exposure

The fund had an average yield-to-worst (YTW) of 7.03% and yield-to-maturity (YTM) of 7.39% as of end-April. This was slightly lower than end-March, when YTW stood at 7.32%, and YTM stood at 7.63%, but remains broadly similar to index levels disclosed for March. These yields above 7% reflect the fund’s sub-investment-grade credit exposures; investors are being compensated for taking higher credit risks.

This level of carry is useful from an income perspective. Coupon income can help support returns and buffer against modest price volatility, provided credit fundamentals remain stable and defaults stay contained. For comparison, USD-denominated investment-grade corporate bonds generally yield above 4% today, implying a meaningful carry pickup for taking on high-yield exposure.

However, the higher yields here should not be viewed as ‘free’ income. The fund remains exposed to credit market volatility, especially if spreads widen or issuer fundamentals weaken. With spreads already tighter than a few years ago and the fund’s average bond price close to par (99.44), we think future total returns are more likely to come from carry and credit selection, rather than from further significant spread tightening.

Another notable feature of the Barings Global Senior Secured Bond Fund is its relatively short-duration profile versus most generic bond funds. The fund had an average duration of around 2.7 to 2.9 years in recent months*. The shorter duration profile is primarily a function of its investment universe. Barings disclosed that the senior secured high-yield index (as of March) had an effective duration of 2.9 years. Ultimately, this means the fund’s main risks lie more in credit than in duration.

(*Depending on data availability, we may use either modified duration [to worst] or effective duration.)

Fund track record: consistent outperformance, but drawdowns still happen

The fund has delivered a respectable long-term track record. Gross of fees (as of end-March), the fund generated gross outperformance of 106 bps (annualised) over its benchmark. It also delivered lower volatility, contributing to a higher Sharpe ratio of 0.85x, compared with 0.65x for the benchmark. The fund also recorded upside capture of 102% and downside capture of 84%, suggesting good participation in positive markets and downside management in weaker periods.

The fund has generally outperformed its fund peers since inception (Chart 6). The only exceptions were the short periods immediately after inception and during the COVID market selloff. Additionally, compared with our current BNY Mellon recommendation, both funds have delivered similar performance since the Barings fund’s October 2018 inception date. The Barings fund outperformed in 2020 and 2021, though it fell harder in 2022.

We caveat, however, that direct comparisons are not straightforward. The Barings fund has a specific senior secured focus, making it difficult to find like-for-like peers. The main similarities with the BNY Mellon fund are their high-yield focus, short-duration nature, and strong long-term performance.

The fund has also excelled in risk management (Table 2). Its 3-year drawdown of -2.9% and 5-year drawdown of -13.5% were both better than the peer composite, while volatility metrics were also lower (better) than the peer composite. Nonetheless, the fund is not immune to drawdowns – the COVID selloff and 2022 market weakness show that the fund can still experience meaningful volatility during periods of market stress.

Overall, the Barings fund’s track record supports its credibility, but investors should still view it as a higher-risk income strategy rather than a defensive or cash-like fixed income product.

Chart 6: Solid performance track record over time

Table 2: Barings fund has also performed well in terms of drawdown and volatility

High distribution yield of almost 9%

The Barings Global Senior Secured Bond Fund is currently available in two monthly-distributing share classes: G USD and G SGD-H. The G share class pays out a fixed dollar (USD) amount monthly, based on the fund’s income profile, market conditions, and opportunity set. The payout is reviewed regularly and may change from time to time to ensure it remains sustainable.

For the USD share class, the latest distribution amount was USD 0.561544 per month, implying an annualised distribution yield of around 8.9% based on an NAV of USD 75.81. For the SGD-hedged share class, the implied distribution yield currently stands at around 5%, based on the latest available data (Table 3).

(Note: Distribution yields are calculated by summing distributions over the last 12 months, divided by the latest NAV.)

We note that distributions may be paid out of a mix of distributable income and capital gains, at Barings’s discretion. Over the past 12 months, part of the 8.9% distribution yield (USD) was paid out of capital, typically around 40% of total distributions (i.e. 60% of total distributions from underlying distributable income). The 8.9% distribution yield is also slightly higher than the fund’s average yield-to-worst (7.03%) or coupon (6.75%) as of April.

Table 3: Distribution yield of G USD and G SGD-H share classes

A differentiated high-yield income strategy

To summarise, the Barings Global Senior Secured Bond Fund offers a differentiated way to access the global high-yield market. Its senior secured focus provides stronger structural protection than traditional unsecured high-yield bonds, while the fund’s diversified portfolio, BB/B-heavy rating profile, short-duration profile, and long-term risk-adjusted track record are supportive.

Nonetheless, the fund remains a high-yield credit product, and its high average yields (on a portfolio level) should be assessed against these higher risks. The fund’s high distribution yield should also be assessed against underlying portfolio metrics and its historical track record, especially as recent distributions have been partially paid out of capital.

This fund is best suited for investors seeking higher potential returns within the fixed income space and as a complement to higher-grade products within a diversified portfolio. Investors seeking high monthly income may find the USD share class’s ~9% distribution yield (or ~5% for SGD) appealing.

Barings also has other funds on our platform, covering both investment-grade and high-yield markets (Table 4). We expect the product offering from Barings to increase over time – stay tuned for more updates!

Table 4: Other funds by Barings on iFAST

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold NIL positions in the abovementioned securities. This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.