The analyst points out that the rise in the high yield risk premium was a result of an increase in perceived risk, noting that the distress ratio was up from 17.1% to 18.0%. “The distress ratio is the percentage of issues in the index yielding more than 1,000 bp over Treasuries,” according to Fridson. “Our historical analysis indicates that those issues have a 23.5% probability of defaulting within one year, versus only 1.2% for non-distressed issues.”
- iShares iBoxx High Yield Corporate Bond Fund (NYSEArca: HYG). HYG has a 12-month yield of 8.06%.
- SPDR High Yield Bond ETF (NYSEArca: JNK). JNK has a 12-month yield of 8.28%.
“High yield bonds got slaughtered early last month and have been very volatile, like stocks, since the lows were put in place on Aug. 8,” writes J.C. Parets at All Star Charts. “The question going forward here in the bond market is: Where would you rather be – low yielding Treasury bonds or higher yielding (junk) bonds?” [Treasury ETFs Rally]
iShares iBoxx High Yield Corporate Bond Fund
For more information on high-yield bonds, visit our junk bonds category.
Max Chen contributed to this article.