Do Increased Yields Ensure Attractive High-Yield Bond Returns?

Investment strategists with a currently favorable view of high-yield bonds base their case partly on the increase in speculative-grade yields from their lows of 2019–2021. Beginning yield, however, has much less influence over subsequent returns of high-yield bonds than is the case with US Treasuries. The strongest correlations of returns with beginning yield, and with the price-earnings ratio in the case of the Standard & Poor’s 500, are observed over six- to ten-year horizons. We create multivariate regressions for these three asset classes. Projected 2025–2029 returns are all in the range of 4.48% to 4.89%, with high-yield ranking midway between the other two in both absolute and risk-adjusted terms.