We recently shared several charts showing that U.S. High Yield bond yields are at the low end of their historical range and thus their prices are at the top of their historical range. Yes, both can stay at current levels for extended periods…or not. Similarly, the Emerging Market bond trade seems long in the tooth. For those who want it all, here is a chart of Emerging Market high yield bonds. They too share extremely low yields based on historical ranges. Looking at this chart, is it more likely that these yields will fall further or that they will rise?
In the 2007-09 global equity bear market, these bonds correlated with equities and the yields more than tripled. Prices were crushed. Is your bond manager using these types of bonds to diversify from equities and to reduce volatility? Caveat emptor! In the quest for yield, many managers are taking on risks that may be unknown to you. Look under the hood of your 529, target date funds and SMAs.
