Corporate Bonds Beat the AI Scare—And This 10.6% Yield Works Either Way

The chatter about an impending AI crash has reached a fever pitch, but the numbers tell a different story. Here’s why bond investors should pay close attention, and how to profit either way.

The Data Says: No Bubble Here

When Coatue Management—a hedge fund that survived the dot-com era with $70 billion in assets today—weighs in on AI risk, markets listen. Late last month, they published compelling evidence: corporate debt issuance in tech, media, and telecom sectors (the TMT complex that includes companies like Microsoft, Meta, Alphabet, and Oracle) grew just 0%, 3%, and 9% from 2023 to 2025.

Compare that to the dot-com bubble’s explosive debt trajectory, and the verdict is clear. The bond market shows minimal AI overexposure. Even accounting for private lending and creative financing schemes, current borrowing levels remain far below bubble territory.

This distinction matters enormously. If volatility strikes—whether real or imagined—capital typically flees stocks for the relative safety of corporate bonds. That makes bond positions an effective hedge.

Why the Timing Is Perfect Right Now

Search trends reveal that AI-bubble fears peaked in November and have been fading since. Yet the market hasn’t caught up. Investors aren’t pricing in future hedging demand, which means corporate bonds are trading cheaper than they should be.

This creates a window: buy now while demand is dormant, then ride the rally when fear resurfaces and money rotates into bonds.

Recent history validates this timing. Throughout most of 2024, corporate bond CEFs traded near par. By late 2025, their discount to net asset value (NAV) dropped to levels unseen since 2022-2023. That discount represents real upside potential once it narrows again.

HYT: The Hedge Fund That Outperforms

The BlackRock Corporate High Yield Fund (HYT) demonstrates why selective bond CEFs outpace their benchmarks. It yields 10.6% today—a payout the fund has grown roughly 11% over the past decade.

The SPDR Bloomberg High Yield Bond ETF (JNK), by contrast, has seen payouts decline slightly while underperforming HYT on a total-return basis. CEF structure matters here: active management, leverage, and pricing inefficiencies create edge that passive ETFs can’t replicate.

The attractive discount alone justifies accumulation. In a environment where institutional money rotates toward bonds, HYT’s discount could compress sharply—delivering outsized gains beyond the 10.6% current yield.

The Bigger Picture: Why Either Way Wins

If the AI skeptics prove right and volatility erupts, cash flows into corporate bonds. If they’re wrong and growth accelerates, bond yields compress as the economic backdrop strengthens—also boosting bond prices.

Either scenario favors positioned bond investors. The real error would be sitting on the sidelines, waiting for perfect clarity that never arrives. With HYT trading at historically attractive valuations and yielding more than 10%, the risk-reward tilts decisively in favor of acting now.