Although Bogleheads High Yield Corporate Bonds have been among the best-performing bond investments this year, there could be greater opportunities to invest in them in the future.
Although high-yield bonds have been among the best-performing bond investments this year, our opinion of the asset class remains neutral. High-yield bonds may be a good option for investors with lengthy investment horizons and a willingness to weather market ups and downs, but there may be better entry times later on from a tactical perspective. In view of the economy's deteriorating indicators, it's critical to draw attention to the dangers that the high-yield bond market may face from weaker growth or, worse, a recession.
Despite such hazards, recent performance has been favorable. This year, high-yield bonds have usually beaten high-quality assets such as US Treasuries, investment-grade corporate bonds, and the US Aggregate Index; nevertheless, it could be challenging to maintain this pace of outperformance in the future.
While yields are large, hazards still exist.
Bogleheads High Yield Corporate Bonds should be mindful of the dangers that a slowdown in economic growth or a complete recession might pose to the high-yield bond market, given the indications that the economy is slowing down. Although we do not expect a near-term recession, the likelihood is growing. Consumer confidence is still very low, the leading economic barometer continues to point to a deteriorating economy, and August's employment data was considerably worse than anticipated, all of which indicate that the labor market has continued to stabilize. Notoriety has also been sparked by the "Sahm rule" being activated in response to the July U.S. employment data, which suggested that a recession was underway.1. Our "up in quality" inclination with fixed income assets is supported by these indications, but we won't know for sure until after the fact, after we're formally in a recession. We'll outline everything investors need know about high-yield bond investment now below.
In moderation, investors might still choose high-yield bonds.
Investors do not have to give up on or steer clear of high-yield bond investments in spite of the growing dangers and narrow spreads. Instead, we advise investors who are thinking about buying high-yield bonds right now to be aware of these risks and have a longer investment horizon in order to weather any possible ups and downs.
High-yield bonds give high yields even in the face of low spreads. Treasury yield levels play a major role in this, although typical rates of 7% or more are still higher than the previous norm before the financial crisis.
What to do now?
For the near term, we are a little cautious when it comes to high-yield bonds due to slower economic growth and increased recession risks. Normally, if you're well rewarded, taking risks makes sense, but with spreads this low today, that's not the case.
Given that yields are still over 7%, long-term investors who are prepared to weather market fluctuations may still hold high-yield bonds (or bond funds) in moderation. In the event that economic development slows down or, worse, a recession occurs, spreads may become more appealing and provide greater possibilities later on.
FAQs
Are high-yield corporate bonds good?
This year, high-yield bonds have usually beaten high-quality assets such as US Treasuries, investment-grade corporate bonds, and the US Aggregate Index; nevertheless, it could be challenging to maintain this pace of outperformance in the future.
What are the risks of high yield bonds?
What dangers exist? High yield bonds have a greater default risk among underlying issuers and are more volatile than investment grade corporate and government bonds. Defaults may increase during periods of economic strain, making this asset class more vulnerable to changes in the economy than other bond market segments.
Is investing in corporate bonds a good idea?
Corporate bonds, dubbed the "last safe investment" by some, may be of interest to investors contemplating fixed-income investments. Investment-quality corporate bonds may shield investors from stock market volatility or at least balance it out with a consistent stream of income.
Mercado Wolski
Although Bogleheads High Yield Corporate Bonds have been among the best-performing bond investments this year, there could be greater opportunities to invest in them in the future.
Although high-yield bonds have been among the best-performing bond investments this year, our opinion of the asset class remains neutral. High-yield bonds may be a good option for investors with lengthy investment horizons and a willingness to weather market ups and downs, but there may be better entry times later on from a tactical perspective. In view of the economy's deteriorating indicators, it's critical to draw attention to the dangers that the high-yield bond market may face from weaker growth or, worse, a recession.
Despite such hazards, recent performance has been favorable. This year, high-yield bonds have usually beaten high-quality assets such as US Treasuries, investment-grade corporate bonds, and the US Aggregate Index; nevertheless, it could be challenging to maintain this pace of outperformance in the future.
While yields are large, hazards still exist.
Bogleheads High Yield Corporate Bonds should be mindful of the dangers that a slowdown in economic growth or a complete recession might pose to the high-yield bond market, given the indications that the economy is slowing down. Although we do not expect a near-term recession, the likelihood is growing. Consumer confidence is still very low, the leading economic barometer continues to point to a deteriorating economy, and August's employment data was considerably worse than anticipated, all of which indicate that the labor market has continued to stabilize. Notoriety has also been sparked by the "Sahm rule" being activated in response to the July U.S. employment data, which suggested that a recession was underway.1. Our "up in quality" inclination with fixed income assets is supported by these indications, but we won't know for sure until after the fact, after we're formally in a recession. We'll outline everything investors need know about high-yield bond investment now below.
In moderation, investors might still choose high-yield bonds.
Investors do not have to give up on or steer clear of high-yield bond investments in spite of the growing dangers and narrow spreads. Instead, we advise investors who are thinking about buying high-yield bonds right now to be aware of these risks and have a longer investment horizon in order to weather any possible ups and downs.
High-yield bonds give high yields even in the face of low spreads. Treasury yield levels play a major role in this, although typical rates of 7% or more are still higher than the previous norm before the financial crisis.
What to do now?
For the near term, we are a little cautious when it comes to high-yield bonds due to slower economic growth and increased recession risks. Normally, if you're well rewarded, taking risks makes sense, but with spreads this low today, that's not the case.
Given that yields are still over 7%, long-term investors who are prepared to weather market fluctuations may still hold high-yield bonds (or bond funds) in moderation. In the event that economic development slows down or, worse, a recession occurs, spreads may become more appealing and provide greater possibilities later on.
FAQs
Are high-yield corporate bonds good?
This year, high-yield bonds have usually beaten high-quality assets such as US Treasuries, investment-grade corporate bonds, and the US Aggregate Index; nevertheless, it could be challenging to maintain this pace of outperformance in the future.
What are the risks of high yield bonds?
What dangers exist? High yield bonds have a greater default risk among underlying issuers and are more volatile than investment grade corporate and government bonds. Defaults may increase during periods of economic strain, making this asset class more vulnerable to changes in the economy than other bond market segments.
Is investing in corporate bonds a good idea?
Corporate bonds, dubbed the "last safe investment" by some, may be of interest to investors contemplating fixed-income investments. Investment-quality corporate bonds may shield investors from stock market volatility or at least balance it out with a consistent stream of income.