US High Yield Bond Fund

Capital at risk. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

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Overview

Manager's Outlook

Despite the year-to-date sell-off, we maintain a favorable fundamental outlook for high yield. Spreads widened significantly in the second quarter and are now wider than their historical averages, while default rates remain well below their long-term averages. Though defaults may tick slightly higher from here due to inflation and a more hawkish Fed, they should stay below their historical averages for the foreseeable future, as recent refinancing activity by companies has extended upcoming maturity walls. Technical conditions remain supportive as year-to-date outflows have been met with a quiet new issue calendar. Our new issue participation has been very limited, and we continued to find better opportunities in the secondary market.

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Though our outlook for high yield remains constructive, risks remain. Inflation represents a key risk moving forward, as issuers' borrowing costs will likely increase as central banks raise rates to combat price pressures. Amid rising borrowing costs and persistent inflation, we are targeting issuers with healthy levels of capital and limited borrowing needs in the future. We are also closely monitoring issuers' ability to pass higher costs through to consumers and will favor companies that are able to do so most effectively. Lastly, given increased risks around the potential for a recession, we continue to stress-test credits for resiliency in such an environment.

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We started the year with tight spreads and average prices near par. However, the year-to-date sell-off has led to wider spreads, lower dollar prices, and has created more total return opportunities in our market. Additionally, as rates have risen year-to-date, yields are higher today than they were at the start of the year. Thus, prospects for income have improved. Our focus will continue to be on security selection driven by fundamental, bottom-up research as our primary source of alpha, as it has been for us over the long term.

Strategy

Fund Summary

Our approach is to use an independent, fundamental, bottom-up credit selection process, combined with forward-looking research to identify potential total return ideas. We have the flexibility to search across the full capital structure to uncover high-conviction ideas and access smaller, under-researched credit issuers. The promotion of environmental and/or social characteristics is achieved through the fund's commitment to maintain at least 10% of the value of its portfolio invested in Sustainable Investments, as defined by the SFDR. Additionally, we apply a proprietary responsible screen (exclusion list). The manager is not constrained by the fund’s benchmark, which is used for performance comparison purposes only.

Performance - Net of Fees

Past performance is not a reliable indicator of future performance.

The Funds are sub-funds of the T. Rowe Price Funds SICAV, a Luxembourg investment company with variable capital which is registered with Commission de Surveillance du Secteur Financier and which qualifies as an undertaking for collective investment in transferable securities (“UCITS”). Full details of the objectives, investment policies and risks are located in the prospectus which is available with the key investor information documents and/or key information document (KID) in English and in an official language of the jurisdictions in which the Funds are registered for public sale, together with the articles of incorporation and the annual and semi-annual reports (together “Fund Documents”). Any decision to invest should be made on the basis of the Fund Documents which are available free of charge from the local representative, local information/paying agent or from authorised distributors. They can also be found along with a summary of investor rights in English at www.troweprice.com. The Management Company reserves the right to terminate marketing arrangements.

Hedged share classes (denoted by 'h') utilise investment techniques to mitigate currency risk between the underlying investment currency(ies) of the fund and the currency of the hedged share class. The costs of doing so will be borne by the share class and there is no guarantee that such hedging will be effective.

Before deciding to invest in the fund, you should read the offering document/prospectus (including its investment objectives, policies and any risk warnings) which are available and may be obtained from any appointed distributors.

The specific securities identified and described in this website do not represent all of the securities purchased, sold, or recommended for the sub-fund and no assumptions should be made that the securities identified and discussed were or will be profitable.

A full list of the currently issued Share Classes including Distributing, Hedged, and Accumulating Categories may be obtained, free of charge and upon request, from the registered office of the Company.

Benchmark: Investors may use the benchmark to compare the fund’s performance. The benchmark has been selected because it is similar to the investment universe used by the investment manager and therefore acts as an appropriate comparator. The investment manager is not constrained by any country, sector and/or individual security weightings relative to the benchmark and has complete freedom to invest in securities that do not form part of the benchmark.

Disclosure on Vendor Indices can be found here.

Risks

Typical Investor