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Fund Spy

Opportunity in the High-Yield Bond Market?

Three options for a measured approach to junk bonds.

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The past year has been a rough one for the high-yield bond Morningstar Category. Even before this month’s rocky credit and equity markets took a toll their toll on the sector, junk bonds had suffered through a volatile 12 months. Those that invested in the high-yield market after looking at the asset class’ post-crisis gains and strong income generation have likely been disappointed by recent returns. That said, the category’s sell-off over the past year has made the asset class more attractive based on valuations; the high-yield market might be presenting an opportunity for contrarian investors. To offset the risks inherent in the asset class, we think it’s important for investors to treat high yield as a long-term strategic investment within portfolios rather than a vehicle for market-timing and trading.

Here we provide an update on the high-yield market’s year-to-date performance, current valuations, and risks and highlight several more-conservative options in the category.

Sumit Desai, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.