The Race to Zero in High Yield Credit

More interesting commentary on the fixed income markets and high yield bonds.  This time from our friends over at Surly Trader:

“The average annual credit loss in high yield bond portfolios was 2.65% between 1992 and 2011.  During that same time period, your average yield for taking that credit risk was 10.25% and your average option adjusted spread was 5.7% .  Today, that total yield has dropped to 4.96%.

At 4.96% you are picking up 4.04% above a comparable tenor in US treasuries.   With a 2.65% average credit loss, you are expecting a 1.39% risk premium for taking on junk credit risk if we experience historical average credit losses.  Do not worry though, because volatility has been removed from all asset classes.”

High-Yield

High Yield – The New Risk Free Asset Class

 

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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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