High-Yield Bonds: A Long-Term Investorā€™s Friend

by Fixed Income AllianceBernstein

The US high-yield bond market has an impressive record when it comes to recovering drawdowns quickly. But how much can an investor who stays put reasonably expect to earn? Todayā€™s yield should give them a pretty good idea.

History has shown that the yield you start with is a remarkably reliable indicator of what you can expect to earn over the next five years. This has held true even during the marketā€™s most stressful and volatile periods. An investor who bought on the eve of the global financial crisisā€”as it turned out, one of the most inauspicious times to have entered the marketā€”and held her position through the downturn and the great recession that followed still earned a five-year annualized return of 7.7%.

How is this possible? Remember that high-yield bonds provide a consistent income stream that few other assets can match. And many issuers typically call their bonds before they matureā€”and pay a premium to bondholders for the privilege. This helps make up for losses suffered on bonds that default.

Downturns are a fact of life in markets, and high-yield bonds are likely to face some more rough patches this year. But the way we see it, thatā€™s no reason to avoid the marketā€™s high income potential.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

Copyright Ā© AllianceBernstein

 

 

 

 

 

 

 

 

 

 

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