This Bond Fund Yields 10%. Buy It if You Have the Nerve.

Fixed-income investors are probably going to have to take on more risk to get higher yields. One way is junk bonds. (TIMOTHY A. CLARY/AFP via Getty Images)

A Fed rate cut is in the wings. And the 10-year Treasury yield now hovers around 4% after a big bump in jobless claims and a meh inflation rate.

And the point is?

It may be tougher for fixed-income investors to find attractive yields—unless you’re OK with taking on more risk.

High-yield corporate bonds, what Wall Street calls junk bonds, could be attractive—especially if you believe the Fed will guide the economy into a soft landing with a series of cuts that more than likely will kick off Wednesday.

Higher rates should translate to earnings growth staying on track.

Indeed, if that’s the case, the BondBloxx CCC-Rated USD High Yield Corporate Bond exchange-traded fund—its yield tops 10%—makes sense, wrote Nicholas Colas, co-founder of DataTrek research.

Colas noted the fund actually doesn’t have that much exposure to the junkiest of junk, owning only 13 percent of CCC3 or lower-rated bonds, ratings that imply “default is imminent or already under way.”

Investors who are bullish on the economy and who aren’t spooked by junk bonds may want the fund as a way to pick up yield.

Colas added that investors aren’t showing concerns about default risk either, which is a good sign.

“This riskiest part of the fixed-income market has a good record of reflecting excessive macro confidence and is not yet flashing a warning signal,” he wrote.

The difference in junk-bond and Treasury yields is about 5.1 percentage points, roughly the same now as in the past decade and, as Colas put it, “nowhere near the historical warning track of below 3.0 points that signals excessive risk appetites.”

Still, not everyone on Wall Street is singing in unison. This junk bond rally could be a red flag that investors are a little too giddy, at least right now.

Jay Kaeppel, a senior research analyst at SentimenTrader, warns that “it’s not the time to chase high-yield bonds” because fall is often a weaker season for junk bonds.

Still, Kaeppel thinks any weakness in the next few months could be a good longer-term buying opportunity. He wants to be clear: He isn’t recommending investors sell short high-yield bonds. He’s still cautiously. They just need to “hold off on new commitments.”

But there is one expert who would steer clear of junk bonds because of the economy.

“We have modest and possibly slowing growth, a weaker labor market and sticky inflation,” Amar Reganti, fixed income strategist at Hartford Funds, told Barron’s. “This is a much more fragile economy.”

To Reganti, the bullish calls for junk bonds “feels almost like complacency.”

OK. You’ve heard both sides. It’s up to you now.

Write to Paul R. La Monica at paul.lamonica@barrons.com