The 10-Year Treasury Yield (TNX) has dropped by 30 basis points from its recent peak, providing a favorable backdrop for high yield (HY) bonds, according to a recent report by BofA Global Research. The HY market has capitalized on this decline, posting a year-to-date return of +1.3%, outperforming both investment-grade (IG) bonds and broadly syndicated loans. BofA analysts highlight that "HY has caught a nice tailwind of lower rates and mid-lower qualities outperforming to post strongest Jan returns across credit." The report notes that while the HY index has widened by 9 basis points in option-adjusted spreads, it remains supported by strong fundamentals, with most issuers actively deleveraging. However, the bottom decile of issuers remains overleveraged and faces negative free cash flows, indicating a bifurcated market. As financial conditions continue to loosen, BofA recommends maintaining an elevated cash balance to capitalize on potential volatility events, with HY spreads expected to average 300 basis points going forward.