Good afternoon. My name is Anne Greenwood, Institutional Portfolio Manager on RBC GAM's BlueBay Fixed Income team. Thanks for listening to today's episode of The Weekly Fix, where we are going to explore how credit risk is migrating and why the market's riskiest borrowers may no longer be where their labels suggest.

If you are trying to identify the riskiest companies in corporate credit today, the high yield bond market—historically the market where the "junkiest" credits resided—may no longer be the first place to look.

Today, more than 60% of the U.S. high yield market is rated BB, the highest rating below investment grade, while CCCs and below represent less than 9%. The percentage of first lien secured debt in high yield indices remains historically high, the duration of the universe has shortened, and defaults have fallen below 2%, nearly half of the long-term average, as of July 2026.

This does not mean high yield is risk free, but it does raise the question of whether today's valuations reflect a fundamentally higher quality market, not simply an overpriced one.

Now, it is hard to argue that index spread levels of 270 bps are cheap, but applying today's rating mix across history suggests high yield trades wider than the headline comparison implies, potentially by as much as 50 basis points.

Importantly for investors, the question of where these risks have migrated is becoming increasingly relevant for portfolios, because it certainly hasn't just disappeared.

So where are these risks migrating?

First, a portion of the lowest-quality, most highly leveraged risk within high yield markets has migrated into leveraged loans and private credit over the last decade. This is due to both the immense growth of what were once ancillary leveraged finance markets, particularly private credit, as well as the increased prevalence of smaller, more highly indebted and private-equity-backed borrowers seeking more "flexible" and floating-rate capital markets financing. The result has been a more than doubling of leveraged loans and an 8–10 fold increase in private credit (with varying estimates) since 2010, while the regular-way high yield bond market has only grown a bit over 60% during that same period.

The second migration is more surprising: into asset-heavy high yield borrowers, and onto high-grade balance sheets through the AI and data center buildout. In other words, it's not just a matter of "junkier" debt migrating away, but also of increasingly higher-grade balance sheet support.

High yield data center bonds have gone from virtually non-existent to roughly 3% of the market in less than two years. AI-related capex has accounted for approximately 19% of high yield bond issuance in 2026, a level of capex spending not seen since the early 2000s.

What is unique this time around, however, is that many of these bonds carry construction protections, long-term leases, or contractual support linked to investment grade hyperscalers. While this does not eliminate the risks, it does mean that parts of the new high yield market are supported by some of the largest cash-generating companies in the world.

And the migration may not be stopping at corporate balance sheets. As data centers have become strategic infrastructure, government support for the surrounding ecosystem is becoming more prevalent through the use of federal land and site access, as well as accelerated permitting and financing for related power infrastructure. Not a guarantee of data-center debt, but evidence that some of the risk is being re-distributed among developers, hyperscalers, utilities, and the public sector.

In other words, the labels have stayed the same, but the borrowers, the backstops—and even the boundary between corporate credit and strategic infrastructure—have changed.

The argument isn't that high yield spreads are cheap or that AI risks should be dismissed, but rather that comparing today's market with its historical averages is no longer entirely apples to apples. And the valuation framework and role of these assets in portfolios should be assessed accordingly.

For investors, that is precisely where active management matters: understanding which risks have migrated, which protections are durable, and where you are still being paid to take them.

Because when the market beneath the index changes, relying on the index alone is no longer enough.

Thanks for tuning in to this episode of The Weekly Fix. Hope to see you next time!