Hi, I’m Jennifer Poon from the T. Rowe Price Fixed Income team, and today I'm here to help you understand the returns on high yield bonds.

High yield has performed well over the long term. Since 1983, US high yield bonds have delivered an average annual return of around 8% - higher than government bonds but a bit lower than equities. 

The coupon is really important in high yield because it’s the main driver of returns over time. When you invest in high yield, most of what you earn comes from those regular interest payments, not from big price moves. In fact, historically, coupon income has accounted for more than 100% of total returns, while defaults and price volatility have been a small drag. So as long as the issuer doesn’t default, you keep collecting that steady income, which is what makes high yield attractive for many investors. 

High yield is about collecting the coupon, reinvesting it, and letting that income compound over time. That’s what drives the majority of long-term returns in this asset class. 

High yield sits in the middle of the risk-return spectrum. It’s not as defensive as government bonds, but it’s much less volatile than equities. Because of that, it can play different roles depending on your portfolio. In a growth-focused portfolio that’s heavy in equities, adding high yield can help lower overall volatility while still contributing to returns. 

And in a more defensive portfolio, it can enhance income and return potential without taking on the full risk of equities. So it helps improve the balance between risk and reward. 

I hope this helps you better understand how high yield bond returns work. 

For more information, please speak to your financial adviser.