Wednesday, April 8, 2009

Abnormal Markets...

High yield bonds are outperforming investment grade corporate bonds, which are outperforming equities (year to date 2009).



How rare is this? Well, this hasn't happened over a full year since 1993 when all three were positive.



And the last time high yield had positive returns, while investment grade bonds and equities had negative returns... well I don't have enough data to tell if that's ever happened.
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3 comments:

  1. AnonymousApril 8, 2009 at 1:30 PM

    Hi, your work is great! I am a student in economics. But it's hard for me to understand this graph. Can you explain what's this mean?

    ReplyDelete
  2. JakeApril 8, 2009 at 5:13 PM

    it's probably a lot simpler than you think. all it shows are returns for equities, investment grade, and high yield annualized over the last 25 years, along with YTD 2009.

    in general, equities have a beta to equities of 1 (i.e. it is 100% correlated to itself), whereas investment grade historically has a smaller beta than high yield. thus, it is odd that high yield would outperform equities while investment grade underperforms high yield...

    not sure if that makes it any clearer

    ReplyDelete
  3. AnonymousApril 8, 2009 at 5:23 PM

    Thank you Jake. I understand. I visit your blog everyday. Your works do help me to understand the current crisis and economic performance. Thank you so much. Chris Chyn

    ReplyDelete