The high yield market has been a roller coaster over the past two years with about a 4.6% decline in 2015, followed by a 17.4% jump in 2016 based on the BofA Merrill Lynch US High Yield Total Return Index. Looking at iShares iBoxx High Yield Corporate Bond ETF (HYG), there was a 5.6% decline in 2015 and a 13.9% rise in the index. Much of the volatility in high yield is due to the energy and commodity crash that began in late-2014, with recovery in spring 2016.
While the double-digit gain in 2016 may seem to indicate inflated values for high yield bonds, looking at the two-year period shows no "bubble" in high yield. In fact, high yield's annualized returns over 2015 and 2016 only come to 5.9% - which not surprisingly is in the range of the effective yield for high yield today, about 6.1%. Looking at HYG…