High yield bonds had their best month in April since 2002. Spreads have narrowed nearly 2% from their 1st quarter highs, when junk bond indexes traded at yield premiums of 7-8% over comparable Treasuries. The nearly 9% yield available from the SPDR Lehman High Yield ETF (JNK) is attractive on a relative basis, but conservative investors seeking income may want to wait to see if higher yields develop as defaults rise and Treasuries correct. Historically, absolute yields of 10% have been an effective threshold forthe high yield asset class to be considered attractively valued and for investors to be adequately compensated for the risk inherent in junk bonds.
