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Junk Bonds Win Fans Despite Low Yields
Yields on junk bonds are near record lows. But their expected lifespans are shrinking fast, causing some investors to see a surprising amount of value in the lower-rated debt.
As a rule of thumb, a one-percentage point increase in a bond’s yield also causes a decline in a bond’s price equal to its duration—making prices of long-duration bonds more volatile than those of shorter-duration bonds. As of Thursday, bonds in the Bloomberg Barclays U.S. high-yield index yielded 5.17% on average, close to the all-time low of 4.83% set in June 2014. But the average duration of the index is also a little more than a year shorter than it was 5 1 / 2 years ago.