US high-yield bonds are heading for their worst quarterly performance since 2022, as investors pull back from riskier corporate debt. The downturn stems from mounting concerns about artificial intelligence disrupting software companies and rising Treasury yields making safer investments more attractive. This marks a significant reversal from recent years when junk bonds benefited from low interest rates and strong corporate earnings.

The shift reflects growing anxiety about the impact of AI on traditional software business models. As companies face potential disruption from new technologies, investors are demanding higher returns for taking on the risk of holding debt from less stable companies. The simultaneous rise in Treasury yields compounds the problem by offering more attractive alternatives to speculative-grade bonds.

This performance decline signals a potential turning point for the junk bond market. After years of strong returns driven by low rates and economic stability, the combination of technological disruption and higher borrowing costs is testing investor appetite for risk. The quarterly loss could prompt further reassessment of credit risk across the high-yield sector.