Home Logon FTA Investment Managers Blog Subscribe About Us Contact Us

Search by Ticker, Keyword or CUSIP       
 
 
 
Blog Home
Bob Carey
Chief Market Strategist
Bio
X •  LinkedIn
 

  A Good Time To Make A Keen Observation
Posted Under: Bond Market
Supporting Image for Blog Post

 

View from the Observation Deck

  1. High yield corporate bonds are speculative-grade debt securities, which means they are inherently more risky than investment grade debt securities.
  2. Since 1983, their average annual default rate has been approximately 4.7%, according to Moody's. In other words, roughly 95 out of 100 bonds have paid their interest obligations each year, on average.
  3. The speculative nature of them, as opposed to say common stocks, has been much more heavily scrutinized through the years, in our opinion. High yield corporate bonds, in some corners, carry a unique stigma.
  4. The term "junk" is synonymous with high yield corporate bonds, yet a good percentage of these debt securities are issued by publicly traded companies. You rarely hear investors refer to stock issues as junk.
  5. Since 1989, the high yield corporate bond market has endured multiple high-profile brokerage scandals, recessions, periods of rising interest rates, deleveraging phases, and a global financial crisis in 2008.
  6. The performance data in the chart features 5-year periods, except for the most recent from 12/09-7/13. For those who may recall, the start of the 1990s was quite challenging due to the Savings & Loan crisis.
  7. From 12/89-7/13, the annualized total return on the BofA Merrill Lynch U.S. High Yield Corporate Bond Index was 9.10%, essentially matching the 9.13% annualized total return on the S&P 500 Index.
  8. As the saying goes, one man's junk is another man's treasure.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance. The BofA Merrill Lynch US High Yield Index tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. Qualifying securities must have a below investment grade rating (based on an average of Moody's, S&P and Fitch).

To Download a PDF of this post, please click here.

Posted on Tuesday, August 6, 2013 @ 3:47 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
Search Posts
MARKET ANALYSIS
Market Commentary and Analysis
Market Commentary Video
Monthly Talking Points
Quarterly Newsletter
Market Observations
Subscribe To Receive Email
 


 PREVIOUS POSTS
What A Difference A Year Can Make
We Are Not In Unchartered Waters
Ladies & Gentlemen, Start Your Engines!
Looking A Bit Like 2003
Companies are Beginning to Earn Your Trust
Bond Fund Investors Shifting Exposure As Expected
Sizing Up The Bull
Focus on Earnings Growth
Focus On The Fundamentals And Persevere
A Tale Of Two Energy Markets
Archive
Skip Navigation Links.
Expand 20242024
Expand 20232023
Expand 20222022
Expand 20212021
Expand 20202020
Expand 20192019
Expand 20182018
Expand 20172017
Expand 20162016
Expand 20152015
Expand 20142014
Expand 20132013
Expand 20122012
Expand 20112011

Search by Topic
Skip Navigation Links.

 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Follow First Trust:  
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2024 All rights reserved.