HY Bonds vs IG Bonds (ETFs)
HYG (iShares iBoxx High Yield Corporate Bond ETF) holds sub-investment-grade corporate bonds (BB and below); LQD (iShares iBoxx Investment Grade Corporate Bond ETF) holds investment-grade corporate bonds (BBB and above). The spread between them is the cleanest real-time measure of credit risk appetite.
Also known as: High Yield Credit (HYG) (ETF_HYG, junk bond ETF) · IG Credit (LQD) (ETF_LQD, investment grade ETF)
Why This Comparison Matters
HYG (iShares iBoxx High Yield Corporate Bond ETF) holds sub-investment-grade corporate bonds (BB and below); LQD (iShares iBoxx Investment Grade Corporate Bond ETF) holds investment-grade corporate bonds (BBB and above). The spread between them is the cleanest real-time measure of credit risk appetite. As of April 2026, HYG's option-adjusted spread over Treasuries sits near 262 basis points, a historically tight reading. LQD spreads sit near 90 basis points. Both are near cycle-tight levels, implying complacent credit markets that leave little cushion for negative surprises.
What HYG and LQD Actually Hold
HYG tracks the Markit iBoxx USD Liquid High Yield Index, holding approximately 1,200 high-yield corporate bonds with at least $400 million in outstanding face value. Credit ratings span BB (higher quality junk) through CCC and below, with average rating of roughly B+. Duration is approximately 3-4 years, shorter than LQD because high-yield bonds typically have shorter maturities. Current 30-day SEC yield is approximately 6.7 percent. Expense ratio 0.49 percent.
LQD tracks the Markit iBoxx USD Liquid Investment Grade Index, holding approximately 2,600 investment-grade corporate bonds. Credit ratings span AAA through BBB, with average rating of roughly A-. Duration is approximately 8-9 years, longer than HYG because investment-grade issuers access the full maturity spectrum including 30-year bonds. Current 30-day SEC yield is approximately 5.2 percent. Expense ratio 0.14 percent. The yield difference between HYG and LQD (approximately 150 basis points) is compensation for credit risk plus a component for the shorter duration in HYG.
The Credit Spread as a Risk Indicator
High-yield corporate bonds trade at a spread over Treasuries that compensates investors for default risk, liquidity risk, and any embedded options. The ICE BofA US High Yield Master II Option-Adjusted Spread (BAMLH0A0HYM2, a commonly tracked index) measures this compensation across roughly 1,800 bonds, averaging near 450 basis points historically and ranging from roughly 275 bps in calm markets to over 1,000 bps in crises.
Investment-grade spreads (BAMLC0A0CM) run a tighter range, averaging near 130 basis points and ranging from 70 bps tight to 625 bps (the 2008 peak). HYG minus LQD spread, or equivalently HY OAS minus IG OAS, compresses to near 180 bps in stable bull markets and expands to over 900 bps in acute crises. When the spread is compressing rapidly, investors are reaching for yield and credit risk is being under-priced. When the spread is widening, investors are rotating up in quality, which historically has been an early warning of equity drawdowns.
Duration Differences and Interest-Rate Sensitivity
Conditional Forward Response (Tail Events)
How IG Credit (LQD) has historically behaved in the 5 sessions following a top-decile or bottom-decile daily move in High Yield Credit (HYG). Computed from 1,289 aligned daily observations ending .
Following these triggers, IG Credit (LQD) falls 0.11% on average over the next 5 sessions, versus an unconditional baseline of -0.10%. 129 qualifying events; IG Credit (LQD) closed positive in 48% of them.
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Frequently Asked Questions
What is the difference between HYG and LQD?+
HYG holds approximately 1,200 high-yield corporate bonds (BB rated and below) with average rating around B+. LQD holds approximately 2,600 investment-grade corporate bonds (BBB through AAA) with average rating around A-. HYG's duration is roughly 4 years, LQD's is roughly 8 years. HYG yields approximately 6.7 percent currently; LQD yields approximately 5.2 percent. The yield difference reflects credit risk (HY bonds default more often) plus a duration adjustment. HYG has higher expense ratio (0.49 percent vs 0.14 percent) because HY bonds are less liquid and costlier to trade.
What is the high yield credit spread and how is it measured?+
The high-yield credit spread is the extra yield that HY bonds pay over equivalent-maturity Treasury bonds, expressed in basis points (1 basis point = 0.01 percent). The most commonly tracked version is the ICE BofA US High Yield Master II Option-Adjusted Spread (OAS), ticker BAMLH0A0HYM2 on FRED. It averages near 450 bps historically. As of April 2026 the HYG OAS sits near 262 basis points, below long-run average and in the bottom quintile of its 20-year range, indicating tight (complacent) credit conditions.
How do credit spreads behave in recessions?+
Credit spreads widen sharply during recessions as default expectations rise and risk appetite falls. The 2008 financial crisis pushed HY OAS to approximately 2,182 basis points in December 2008, an all-time record. The 2020 COVID crash pushed HY OAS to 1,087 basis points in March 2020. The 2016 energy-sector stress pushed HY OAS to 887 bps. The 2022 Fed-hiking cycle was unusual: HY spreads peaked near 600 bps, well below prior recession extremes, because no recession actually materialized. Sustained HY OAS above 700 basis points historically has been associated with active recessions.
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Data sourced from FRED, CoinGecko, CBOE, and other providers. This page is for informational purposes only and does not constitute financial advice. Past performance does not guarantee future results.