Broad market U.S. high yield spreads signaling potentially attractive entry point

  • Since 1994, the Bloomberg Barclays U.S. Corporate High Yield Index (broad market U.S. high yield) has delivered an average annual return of 7.1%. 
  • Over this time period, there have been 7 dislocations within the broad market U.S. high yield market that presented investors with potentially attractive entry points. 
  • These periods are defined by broad market U.S. high yield spreads crossing the 800 basis points threshold and coincided with the Dot Com Bubble, the Enron/WorldCom accounting scandals, the Financial Crisis, the European Debt Crisis, and the Oil Price Decline. 
  • Each dislocation proved to be an attractive entry point for an investor that held high yield bonds for at least 15 months, as they generated above-average returns in each subsequent period. 

Source: Calculated by PGIM, using data from Barclays and Morningstar as of 16/3/2020. The chart and table illustrates index average annual performance during 7 distinct periods in which broad market U.S. high yield spreads (BBG Barclays U.S. Corporate High Yield Index) breached 800bps (using daily spread data). An 800 bps threshold was selected to allow investors to see how the BBG Barclays U.S. Corporate High Yield Index performed during multiple spread widening periods. High yield spreads, spread level, and average spreads represented by: BBG Barclays U.S. Corporate High Yield Index. All indexes are unmanaged. Investors cannot invest directly in an index. Past performance does not guarantee future results.

For Professional Investors only. All investments involve risk, including the possible loss of capital.

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