Chapter 5. Securing Junk Bond Yields at Treasury Bond Risk
High-yield bond funds (funds that invest in bonds of less-than-investment-grade quality, BB, B, and even C and sometimes below) have had their good years, their super years, but also their dismal years. High-yield bonds have yielded as much as 10% more than Treasury bonds, although usually the spread runs between 3% and 5%. During favorable economic climates, capital often flows into high-yield bonds because of their yield advantage. For the most part, this has worked out well for investors.
On balance, long-term returns from high-yield bond funds—which generally maintain well-diversified portfolios of such instruments because of their risks—have outstripped the performance of bond funds ...
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