Great piece from Tom Brakke’s research puzzle pix called “five years of junk” about the performance of junk bonds from 2008 to present, including the low in 2009. The top panel shows the returns, the middle the absolute yields, and the bottom spread versus treasuries (click to enlarge):
Brakke notes two very interesting things:
First, notice how the market held together for many months up until the Lehman debacle. Not much warning from the market pricing mechanism even as the environment was deteriorating rapidly. Second, these bonds bottomed well in advance of stocks. (For your scorecard, from that bottom to 3/31, the CCCs returned 247%.)
Brakke’s conclusion is also worth noting:
Today we have a situation where investors have flocked in, even as the valuation picture has worsened as the yield cushion against inevitable problems has been depleted. Nothing will necessarily happen tomorrow or the next day, but there’s no margin for error if something untoward does occur.