The iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) and SPDR Barclays Capital High Yield Bond (NYSEArca: JNK) are the largest junk debt ETFs. They are paying 30-day SEC yields of more than 5%. Both ETFs posted total returns of more than 11% in 2012.
“Of course it’s most unlikely that high yield bonds will deliver returns even close to 2012’s performance. On the other hand, they don’t have to equal last year’s return to warrant holding today. While yields are near all-time lows, yield spreads tell a very different story,” Oaktree said.
“So we don’t think high yield bonds are overpriced in relative terms,” it added. “In fact, we feel the odds favor their delivering relative performance that is superior to Treasurys and high grade corporates over multi-year holding periods ahead.”
Full disclosure: Tom Lydon’s clients own HYG and JNK.