By Gershon Distenfeld
Investors seeking more robust returns in a lower-interest-rate environment often look to high-yield bonds for answers. But it's critical that they don't reach too far down the credit spectrum in search of higher yields, as tempting as it may be.
High Yield's Slippery Slope
We're currently in the stable phase of the credit cycle - characterized by companies' solid financial health - and we anticipate that we're still years away from increasing defaults becoming an issue. But that doesn't give investors the green light to begin stretching for higher yields by investing in lower-rated credits.
The display below shows cumulative five-year default rates, which worsen the further one slides down the credit scale. Even reaching for CCC-rated debt can put an investor in hot water and often isn't worth the pain, as the compensation isn't commensurate with the risk level. The extra premium investors receive is