Defaults and Returns on High Yield Bonds: Analysis through 1994

Abstract

Nineteen-ninety-four was a relatively lackluster year for the high yield market with relatively low defaults combined with slightly negative total returns. When viewed in comparative terms with other fixed income securities markets, however, high yield debt performed quite well. Compared to long term U.S. Government securities, the average yield spread on high yield debt dropped to the lowest year-end level (3.44%) since 1984.

This report documents the high yield debt market’s risk and return performance in 1994 by presenting default and mortality statistics and provides a matrix of average returns and other performance statistics over the relevant periods of the market’s evolution. Our analysis covers the period 1971-1994 for defaults and 1978-1994 for returns.