Demand for these junk bonds have been on the rise and the best performers were in health care and utilities. It is thought that the reason for the rally is that traditional high-yield investors never left the market but stuck it through the toughest of times.
Investors have looked to the riskier single-B securities from the double-B-rated issues. Time will tell if people will be interested in the even more riskier triple-C-rated bonds.
But will this rally be sustainable for the long-term investor? While some low-quality stocks could benefit from the recovery, some others may not fare so well. It is important to know that there is a lot of risk involved when investing in these types of stocks and a potential investor should follow some due diligence before jumping in. As always, have a strategy in place that you will stick to in order to protect yourself from the possibility of unlimited losses.
- State Street’s SPDR Lehman High Yield Bond (JNK): up 15.9% year-to-date
- iShares iBOXX $High Yield Corporate Bond (HYG): up 9.1% year-to-date
- PowerShares High Yield Corporate Bond (PHB): up 8.9% year-to-date
Max Chen contributed to this article.