The phase of the credit cycle
According to our correlation matrix high yield is best comparable with equities. The value of $100 invested in January 1987 in high yield and the S&P 500 Index. It can be said that investors realized similar returns over the period Jan. 1987–Dec. 2003. It brings more clarity into the relationship between high yield and equity markets. Obviously both markets are affected by similar macroeconomic factors, so that they show parallel fluctuations in risk. But it is important to note that high yield experienced less risk over this period, meaning that high yield returns experience less volatility than that observed with equities.
It shows historical yields in the high-yield market versus 10-year Treasuries and BBBs. The spread differential varies significantly depending on the phase of the credit cycle.
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