No. of Recommendations: 2

I'm not sure a recession is always highly correlated to junk bond yields. Do you have any data on this?

I never really researched or read any studies supporting this... I was just going by personal experience from many (too many) years of investing. So it’s good that you asked for links and data to backup my statement.

I compared data for Vanguard’s High Yield fund (VWEHX) because it goes back the farthest (1989) that I was able to find. If you have something that goes back farther, it would be interesting to see how it correlates.

Recessions since 1989:

July 1990 – Mar 1991
Mar 2001 – Nov 2001
Dec 2007 – Jun 2009

Vanguard High-Yield Fund (VWEHX) Secular trend bottoms since 1989

Nov 1990 (6.1) Jan 1991 (6.1) down from Jul 1989 (8.2)
Sep 2001 (6.1) Oct 2002 (5.5) down from Feb 1998 (8.2)
Oct 2008 (4.2) Dec 2008 (3.9) down from May 2007 (6.3)

Above I list the double bottoms as reversal points. Price bottoms seem to correlate close enough to recession bottoms (or recoveries) for my investing. As Mark Twain is quoted as saying, "history does not repeat, but it does rhyme".

A recession bottom is probably a good time to begin buying most financial assets, but junk bonds allows me to “lock-in” a significant income stream for a set period. That is really why I’m buying this asset class.

I’m sure you are correct that junk bonds are “just reacting to the Fed pushing yields down”, but this is all part of the classical business cycle: 1) inverted yield curve, then 2) recession and high default rates, followed by 3) easy money by the fed and finally 4) all markets rally.

I’m just connecting the dots.

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