Hi, I’m Jennifer Poon from the T. Rowe Price Fixed Income team, and in this video, we’ll look at where high yield fits in the broader investment landscape.

Understanding where high yield sits on the risk and return spectrum is important – because it’s what makes high yield such a unique asset class.

It doesn’t behave like government bonds, and it’s not quite like equities either. Instead, it fills an important gap – offering more income and return potential than government bonds, with less volatility than equities.

Let’s look at the numbers US high yield has delivered an average annual return of around 8.2% since 1983.

To put that into context:

• That’s about 2.5% more than US Treasuries
• And roughly 3% less than US equities over the same period. 

Since 1983, US high yield has had an average volatility of around 8.3%. That's about 3% more than US treasuries and roughly 7% less than US equities, half the volatility of US equities, over the same period.

So while it's certainly not as stable as government bonds, it's also significantly less volatile than equities. 

So from a return perspective, high yield historically sits right in the middle – bridging the gap between bonds and equities.

And that’s what gives it such a valuable role in portfolio construction – particularly for investors looking to enhance income without going all the way into equities. 

For more information on this exciting asset class, speak to your financial adviser.