In last week’s post, I referenced the performance of high-yield corporate bonds during periods of stock market turmoil. Unfortunately, we now have more recent data to evaluate how high-yield corporate bonds tend to perform during periods of bad stock market performance. The S&P 500 was down about 0.6 percent in April, 6.0 percent in May and about 2.4 percent in June (through June 4). The backdrop of the poor performance is an apparently slowing U.S. economy and a heightening of the Eurozone debt crisis, with the health of the Spanish banking system being the current area of focus.
In tandem with this poor stock market performance, we have seen high-yield corporate bonds perform as expected. They underperformed Treasuries by about 0.1 percent in April, 2.3 percent in May and about 0.8 percent in June (through June 4). To the extent that stocks continue to do poorly (which of course is virtually impossible to predict), you should expect to continue to see this pattern.
Interestingly, while I noted last week that Vanguard was closing its high-yield corporate bond fund to new investors, a piece in the Wall Street Journal noted that investors had pulled more than $3 billion out of high-yield bond funds over the month of May ending May 23. This is classic buy-high, sell-low behavior and will certainly continue if the performance doesn’t live up to expectations.
Random Links and Commentary of the Week
I’m probably behind the curve on some of these music recommendations but wanted to share them just the same:
The Chromatics tune is a cover of the Neil Young song. The Chromatics also had a good instrumental tune on the Drive sound track called “Tick of the Clock.”
In a previous post, I mentioned my pick for the NBA playoffs was the Spurs. After winning the first two games of the series with the Thunder it looks like the Spurs are in big trouble down 3-2 and heading back to Oklahoma City for game five. Without a doubt, though, my favorite part of the series has been watching Craig Sager from TNT try to interview Gregg Popovich. Here’s a sampling: poor Craig Sager.