Why high yield bond volatility has lessened



4.) High yield isn’t as volatile as it used to be. While the bonds’ yields have fallen in recent years, their volatility has also dropped. In fact, the volatility of a high yield bond is roughly half of what it was last summer.

Market Realist – High yield bonds (HYG)(JNK) usually have high yields because of the possibility they could default. That’s why they’re considered to be risky assets. And, that’s why they tend to be more volatile (VXX)(XIV).

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Meanwhile, the graph above shows that high yield bond volatility has lessened of late. Currently, the 30-day volatility for high yield bonds stands at 6.1%, though it hit nearly 70% during the crisis. The fall in volatility is because the default risk has declined. The next part of this series explains why and when this happened in more detail.

The fact that high yield bonds are now less risky, and that they yield so much more than Treasuries (TLT), make these bonds far more attractive to investors looking for high yields.


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