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

The blue line is the dividend yield of the VanEck BDC Income ETF (BIZD), currently at 11.4% as of 14 August. However, the headline trailing yield is backward-looking, and currently overstates the likely run-rate cash yield. The latest quarterly dividend distribution from BIZD dropped from USD 0.48 in April 2026 to USD 0.24 in July 2026, a reduction of 50%.  Annualizing the recent dividend payout produces a significantly lower forward distribution yield of 7.2%.  

The orange line represents the BofA US High Yield Index effective yield, which stood at 7.0% as of 14 August. On the face of it, the spread between high yield and the BDC dividend yield was 440bps. However, on a forward-looking basis most of that apparent premium disappears, reducing the spread to around 20bps. HY offers contractually defined interest and principal repayment, better liquidity, greater transparency, while with BDCs investors are exposed to leveraged BDC equity, variable dividends, private middle-market credit risk, and potentially much greater mark-to-market volatility. The question is, are investors compensated enough to take the middle-market BDC risk as compared to high yield, despite BIZD’s 17% YoY price decline. 

Boston Fed analysis of BDC portfolios found that PIK usage rose to roughly 10% by early 2026 from about 6% in early 2022, even as BDC lending spreads compressed by about 100bps over the past two years. This suggests borrower cash-flow pressure is rising while lender compensation has tightened. This could impact future refinancing, lender selectivity and future distribution stability, potentially key watch items for BDC portfolio companies.

The spread between BIZD’s dividend yield and the 2-year US Treasury was 723bps as of 14 August, compared with 732bps a year earlier. However, on a forward distribution yield basis the spread narrows to almost 300bps.

*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.)