What’s Behind High Yield’s Edge over Investment Grade? Explaining Excess-Return Drivers over the Past Five Years
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Over the past five years, U.S. high-yield corporate bonds outperformed investment-grade corporates by four percentage points annualized, as reflected by the performance of the MSCI USD High Yield Corporate Bond Index and MSCI USD Investment Grade Corporate Bond Index. While this performance gap may initially appear to validate higher credit-risk exposure as a return-enhancing strategy, a deeper analysis reveals a more nuanced — and actionable — story. Using the MSCI Fixed Income Performance Attribution 2.0 framework, we decompose the sources of high-yield’s outperformance into underlying factors.
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