A previous post noted that fixed-income strategist Hank Cunningham was advising clients to go into high-yield bonds. Last week, Gluskin Sheff economist and strategist David Rosenberg joined the chorus.
He observed that the average 9% paid out by high-yield bonds was 415 basis point higher than the average for U.S. investment-grade bonds. When the economy is not in recession, the spread is typically in the range of 200 to 400 basis points.
The yield on investment-grade bonds is back to where it was in November, 2004. In thatperiod, high-yield bonds averaged 7%, nearly 200 basis points lower than current readings.
For Canadian investors, Cunningham recommendsthe iShares U.S. High Yield Bond Index Fund ( XHY). U.S and long-term Canadian investors can buy iShares iBoxx $ High Yield Corporate Bond Fund ( HYG).