Case for High Yield Bonds

David Rosenberg of Gluskin Sheff comments on the price-to-value ratio found in high yield bonds right now:

Let’s just say that the high-yield market, while clearly not as ‘safe’ as govies or bank paper (though less risky than equities), likely fits the “reasonable price” part of the acronym. I see that we have a bit of an anomaly on our hands — the average yield on a U.S. investment-grade bond right now is 4.6%, where it was back in November 2004. And today we have the average yield in the high-yield market at 9% — though it has backed up recently, the yield is pretty well back to the levels seen in November 2007.

Here’s the rub: In November 2004, the average yield in the high-yield space was 7%, not 9%. A reversion here would mean 200bps of relative outperformance for the high-yield arena.