May 2 (Reuters) - Spreads on U.S. high yield bonds, or

the premium companies pay over U.S. Treasuries, remain tight

despite a pick-up in distress within the asset class, as

investors see the majority of issuers weathering

higher-for-longer interest rates.

Elevated rates and persistent inflation have eaten into the

bottom lines of many U.S. corporate borrowers, particularly

those with high leverage and lower credit ratings.

The dollar volume of defaulted debt rose to over $33 billion

in the first quarter from roughly $19 billion in the fourth

quarter of 2023, according to a Monday report by Moody's

Ratings.

In addition, the default rate among junk-rated borrowers

came in at 5.8% over the last 12 months, its highest in three

years, Moody's noted.

High-yield bond spreads widened 3 basis points on May 1 but

they have tightened 33 basis points so far this year, according

to the ICE BofA High Yield index.

Distressed exchanges continue to play a significant role in

these defaults. There have been $12.8 billion in distressed

exchanges so far this year, on pace to beat out the $35.2

billion record high reached in 2008, according to a Thursday

research note by JPMorgan.

The volume of distressed exchanges so far in 2024 accounts

for half of all default volume, also on pace to be the highest

percentage on record.

Despite a pickup in distress, U.S. high-yield spreads have

narrowed in recent weeks. The ICE BofA High Yield Index

Option-Adjusted Spread stood at 3.21% on Wednesday, down 21

basis points from their April high of 3.42%.

"Some of the companies that have defaulted either

technically or actually entered bankruptcy thus far in the

credit cycle are the ones that were weaker fundamentally heading

into this cycle," said Sinjin Bowron, portfolio manager and head

of high yield and leveraged loan strategies at investment firm

Beach Point Capital Management.

"So there haven't been any real surprises in the market yet,

and I think that's one reason why spreads have been generally

range-bound over the past several months," he said.

Treasury bonds rallied on Thursday following Fed Chair

Jerome Powell's Wednesday remarks that while the central bank

was unlikely to raise rates further, they could potentially

remain steady in the 5.25% to 5.50% range that has been in place

since July as inflation remains persistent.

High-yield bonds have provided a yield to maturity of 8.18%

so far this year, according to the S&P U.S. High Yield Corporate

Bond Index.

"Obviously any increase in default distress is concerning,"

said Andrew Bellis, head of private debt at private equity firm

Partners Group.

"But I think if you have to put it in comparison with where

you're coming from, the overall returns in the asset class are

still very attractive," he said.