Quote:
Originally Posted by MoneyGuy
Regarding high-yield bonds, don't be so sceptical. I'm looking at numbers of post-recession periods and times when spreads are over 1,000 basis points tend to be times when HY bonds do very well. In the last three of these recoveries, HY bonds have averaged 18% per year while stocks have averaged 10% in those same periods of time. Spreads were around 2,200+ and are now down to around 1,400 bps last time I checked, so well down from their peak a few months but still above the magic 1,000 mark. It's time, I'm telling you.
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There are a few reasons that I'm skeptical, not the least of which is this:
High Yield Index Returns:
1990: (4.3)
1991: 34.6
1992: 18.2
1993: 17.2
1994: (1.2)
1995: 19.1
1996: 11.1
1997: 12.8
1998: 3.7
1999: 1.6
2000: (3.8)
2001: 6.2
2002: (1.1)
2003: 27.2
2004: 10.8
2005: 2.8
2006: 11.6
2007: 2.2
2008: (26.2)
2009, YTD: 17.1
While some of these numbers look good, common stocks would've outperformed in almost every year. Going by my memory (which is clearly a recipe for disaster as someone will call me on this!) high-yields outperformed common stocks once? Other than that you have a wild ride here and have to try to time things to do well.
I'm worried about the potential for defaults to come to bear on the year-to-date figure as well. Seems to me that in years past the default figure is around 20% in this space...surely throw in some credit issues and this risk has to increase?