Middle market debt held by BDCs vs High yield vs Treasury yields

The blue line represents the current dividend yield of the VanEck BDC Income ETF (BIZD), which stood at 11.7% as of 14 September, a significant decline from approximately 14% in mid-June. The decline reflects the re-rating of dividend distribution, which fell 14% YoY to USD 1.52 per share on a trailing-12-month basis, while the latest quarter dividend declined 46% to USD 0.24 per share. At the current run-rate the forward dividend yield is 7.3%, materially below its 11.7% trailing yield. Whether the decline in dividend is a one-off or will be the norm, given the AI related disruption and geopolitical tensions, defaults and conversion to PIKs, is still to be seen.

US headline inflation was flat YoY at 3.4% in August, while the 2-year Treasury increased 109bps YoY to 4.65% as of 14 September, indicating that front-end rates remain elevated. Although the 2-year Treasury does not directly determine private-credit loan coupons, it remains an indicator of the broader rate environment in which floating-rate middle-market borrowers are refinancing. Private-credit stress also increased, with Fitch’s trailing-12-month default rate reaching a record 6.3% in August from 6.1% in July. Issuers with less than USD 25m of EBITDA had the highest default rate at 12.0%, while healthcare and industrial and manufacturing borrowers each recorded a 9.9% rate. Interest deferrals and the introduction of PIK accounted for 47% of trailing-12-month default events, while stressed maturity extensions accounted for a further 41%. Together, these measures represented 88% of default events, indicating that borrower stress was largely addressed through payment relief and maturity amendments rather than uncured payment defaults.

The orange line represents the BofA US High Yield Index effective yield, which stood at 7.5% as of 14 September. BIZD’s trailing dividend yield implied a 417bps premium over US high yield, however, on a forward-looking basis most of that apparent premium disappears, with an implied deficit of 17bps. The forward comparison is more relevant as BIZD investors are exposed to variable distributions, leveraged BDC equity and private middle-market credit risk and potentially much greater mark-to-market volatility, while high-yield bonds provide contractual coupon and principal claims, subject to credit risk. Despite BIZD’s 17.5% YoY price decline, its forward distribution yield remains insufficiently compelling, offering no meaningful income premium over high-yield bonds.

The spread between BIZD’s trailing dividend yield and the 2-year US Treasury was 700bps as of 14 September, compared with 766bps a year earlier and below the one-year average of 864bps. Using BIZD’s forward distribution yield, the spread was considerably narrower at 266bps.

*As of 31 July 2026, BIZD’s weighted average market cap stands at USD 5.4bn, with PE ratio of 12 and PB of 0.84, with the entire portfolio holdings in publicly traded BDCs. Click here for top holdings.

(Past performance is no guarantee of future results.)