Income Volatility Fixed Income Chart

The One Metric All High-Yield Investors Should Know

Jun 28, 2022
2 min read
Five-Year Returns Have Closely Tracked Yield at Start of Period
Five-Year Returns Have Closely Tracked Yield at Start of Period

Historical and current analysis and forecasts do not guarantee future results. An investor cannot invest directly in an index, and its performance does not reflect any fees and expenses or represent the performance of any AB fund.
As of June 27, 2022
*Yield to worst as of date shown
†Annualized five-year return beginning on date shown
Source: Bloomberg and AllianceBernstein (AB)

High-yield bonds have a reputation for volatility. But history shows that the US high-yield sector’s yield to worst has been a reliable indicator of its return over the following five years.

In fact, US high-yield bonds have performed predictably, even through rough markets. The relationship between yield to worst and future five-year returns held steady during the global financial crisis, one of the most stressful periods of economic and market turmoil on record.

Why? High-yield bonds supply a consistent income stream that few other assets can match. And when high-yield issuers call their bonds before they mature, they pay bondholders a premium for the privilege. This helps compensate investors for losses suffered when some bonds default.

What does all this mean for today’s investors? High-yield bonds may experience some near-term volatility, but investors with a long-term lens can ride out short-term drawdowns.

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. Views are subject to revision over time.