Not many asset classes finished 2018 on a high note. But the December pullback was particularly harsh for high-yield bonds. In fact, the group suffered its worst monthly performance in eight years. Like most in this category, the SPDR High Yield Bond (NYSE: JNK) fund ended 2018 in negative territory with a loss of 3.3%. Despite being riskier than their investment-grade counterparts, annual declines are rare for high-yield bonds. #-ad_banner-#In fact, it has only happened a handful of times over the past 20 years. And they don’t stay down for long. According to State Street, high-yield bonds have rebounded 29%… Read More
Not many asset classes finished 2018 on a high note. But the December pullback was particularly harsh for high-yield bonds. In fact, the group suffered its worst monthly performance in eight years. Like most in this category, the SPDR High Yield Bond (NYSE: JNK) fund ended 2018 in negative territory with a loss of 3.3%. Despite being riskier than their investment-grade counterparts, annual declines are rare for high-yield bonds. #-ad_banner-#In fact, it has only happened a handful of times over the past 20 years. And they don’t stay down for long. According to State Street, high-yield bonds have rebounded 29% on average in the calendar year following an annual decline. While I wouldn’t bank on that large of a gain, I do believe this same pattern will hold in 2019. As you may know, this group isn’t particularly rate-sensitive. Like equities, it responds more to broad economic changes, which in turn influence the ability of corporate borrowers to repay their IOUs. Right now, most are meeting principal and interest payments in a timely manner. According to Moody’s, default rates on speculative-grade U.S. debt are projected to fall from 3.0% currently (already well below historical norms) to just 2.0% by September. Read More