Junk bond rates

historically, junk has returned more vis a vis risk / return than any asset class. Now junk took a little "bath" over the f**ed up telecom industry and Argentina crisis. It has yields around 13% and risk is not that bad if spread around in a good fund. The historical volatility is 17% for the SP and the yield around %19 the junk has yield 14 with volatility of 7-8 percent. You see my point ???

What "history" of the S&P 500 gives you a yield of 19%? What years? That's just way too high to be a truly "historical" figure.


Better be careful when using "volatility" (I guess you mean annual standard deviation of total return) as a measure of risk when dealing with junk. The risk that can really hurt you is default risk, and these bonds go upside down a whole lot more that better paper does.

I think one of his points is that you can manage the risk via a junk bond fund by providing diversification. However, I'm not sure that junk bond funds flucuate less than the S&P 500 though.

This is definitely not the environment to be buying high yields....risk/reward out of whack.

I double checked my figues. research by Leah and Franco Modigliani (Nobel laureate)


from 1980 - 1997 sp returned 17.13 percenr with volatility (annual) 17.24 same preriod junk returned 13.71, with annual volatility of 9.19 percent. For fear default you can pick agressive or lesser agressive junk. and while we have rates(discount) coming down or stay even we are fine !!!!

I share your sentiment. I did well in 98 by buying shares in a junk bond fund after the Long Term Capital fiasco and the Fed eased. My thinking was that the spreads between junk and treasuries would narrow due to the lower risk of an economic downturn and financial crises. I don't think it's the time to buy them yet (which probably means you should back up the truck) but I think there will be an opportunity down the road when the economic and financial risks have moderate.

I don't disagree with past statistics...I'm saying the current environment is not a good one to be buying junk.

Why ? The telecom crisis was a good down shift. Strong funds have junk and above junk funds - they are superb pickers. Argentina may cause a little calamity but and I re-iterate the rates are not going up why would you not buy junk ? Or do you think you have a better place for funds ? I am just asking. As for the stock market - I buy some drug/health care and used to own energy and a little gold (yes it perked up) other than this the market is very shaky and in a down trend. hard to see any other place vis a vis risk - return. Some are looking into foreign bonds as well.

I wouldn't buy junk because the economic conditions are worse than many people price in. Plus I wouldn't agree with buying any bond fund..you are paying too much for the service. Just have your money in cash because of the market.

John, I don't want you to think I am arguing over this. I respect anyones opinion - money made is private whatever you do with it is your business. I just believe in long term statistics and not that bearish on the general economy (I am bearish on CA and tech economy) Between 1989-1990 the last junk crash the the average junk fund lost .48 percent in 1989 and 9.96 percent in 1990. Invesco and Vanguard feared better 4.6 - 5.8 % (1990) respectively. The nasdaq lost 60% in one year I rather have a junk bond crash.