Defaults & Returns on High Yield Bonds: Analysis through 1999 and Default Outlook for 2000-2002

Full year 1999 was again a mixed performance year for the high yield bond market in the United States but for different reasons than the mixed 1998 performance. Once again, total returns were lackluster, registering just +1.73%. But, unlike last year’s companion negative return spread vs. U.S. ten-year Treasuries, the return spread in 1999 was a positive 10.1%, as yield spreads increased significantly and Treasuries tumbled. And again, new issuance of high yield bonds was impressive, topping $100 billion for the third consecutive year, but aggregate defaults increased dramatically to an all-time record level of over$23 billion (face value). The default rate registered a sizeable increase, topping 4% (4.15%) for the first time since 1991 and significantly above the 1.6% level of one year earlier. Combined with a relatively low recovery rate of below 30 cents on the dollar, the default loss rate was 3.2% in 1999, compared to a historical arithmetic annual average of 1.9%. Despite 1999’s low absolute return, net returns (after deducting losses from defaults, rating migrations and interest rate changes) for the 1978-1999 period continued to show an attractive compounded return spread over U.S. Treasury bonds of close to 3.0% per year (2.96%). This report documents the high yield bond market’s risk and return performance by presenting traditional and mortality default rate statistics and providing a matrix of performance statistics over the relevant periods of the market’s evolution. Our analysis covers the 1971-1999 period for defaults and the 1978-1999 period for returns. In addition, we present our annual forecast of expected defaults for the next three years (2000-2002). Our 1999 forecast was for substantially higher defaults than 1998, but we underestimated the record default levels. Default levels and rates were swelled in 1999 due to a number of factors, including the huge new issuance in the 1997-1999 period, a trend toward earlier defaults, deteriorating credit quality of new issues, pockets of industry fragility, and the continued vestige of 1998’s flight to quality. For 2000, we expect default levels to decline to about $17.5 billion and the default rate to regress to around three percent of the amount outstanding

Defaults and Returns on High Yield Bonds: Analysis Through 1995

Nineteen-ninety five was an excellent year for the high yield market with relatively low defaults combined with returns of almost 20%, the highest since 1991. When viewed in comparative terms with other fixed income securities markets, however, the high yield debt market’s performance in 1995 was not exceptional. This report documents the high yield debt market’s risk and return performance by presenting default and mortality statistics and providing a matrix of average returns and other performance statistics over the relevant periods of the market’s evolution. Our analysis covers the period 1971-1995 for defaults and 1978-1995 for returns

Defaults and Returns on High Yield Bonds: Analysis Through 1995

Nineteen-ninety five was an excellent year for the high yield market with relatively low defaults combined with returns of almost 20%, the highest since 1991. When viewed in comparative terms with other fixed income securities markets, however, the high yield debt market’s performance in 1995 was not exceptional. This report documents the high yield debt market’s risk and return performance by presenting default and mortality statistics and providing a matrix of average returns and other performance statistics over the relevant periods of the market’s evolution. Our analysis covers the period 1971-1995 for defaults and 1978-1995 for returns

Defaults and Returns on High Yield Bonds: Analysis through 1994

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

Defaults and Returns on High Yield Bonds: Analysis through 1994

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

Defaults & Returns on High Yield Bonds: Analysis Through 1998 and Default Outlook for 1999-2001

Nineteen-ninety-eight was a mixed performance year for the high yield bond market in the United States , with much below average returns and spreads over default-risk-free Treasury Bonds but continued relatively low default rates and losses and another record year of new insurance. Returns and new insurance were excellent through the first seven months of the year but returns reversed and new issues dried up, temporarily, in the wake of August's Russians default and the emerging market turmoil, causing another short-term flight to quality. Returns in 1998 on high yield bonds in the U.S. were slightly above 4.0% for the entire year, about 8.5% lower than historical averages. Return spreads also were much below average (-8.7%). The default rate was again relatively low, 1.60%, and losses from default 1.1%. Despite 1998's low relative return, net returns (after deducting losses from defaults) over the last two decades continue to show a compound result over 12% per year and spreads over U.S. Treasuries of over 2.5% per year. New insurance of high yield debt in 1998 totaled a record $152 billion, with$120 billion of the total in the first seven and a half months. This report documents the high yield debt market's risk and return performance by presenting default and morality statistics and providing a matrix of average returns and other performance statistics over relevant periods of the market's evolution. Our analysis covers the period 1971-1998 for defaults and 1978-1998 for returns. In addition, we present our annual forecast of expected defaults for the next three years (1999-2001). Two other reports, published by the NYU Salomon Center, comprehensively document the performance of defaulted public bonds and bank loans and the default rate experience on syndicated bank loans

Defaults & Returns on High Yield Bonds: Analysis Through 1998 and Default Outlook for 1999-2001

Nineteen-ninety-eight was a mixed performance year for the high yield bond market in the United States , with much below average returns and spreads over default-risk-free Treasury Bonds but continued relatively low default rates and losses and another record year of new insurance. Returns and new insurance were excellent through the first seven months of the year but returns reversed and new issues dried up, temporarily, in the wake of August's Russians default and the emerging market turmoil, causing another short-term flight to quality. Returns in 1998 on high yield bonds in the U.S. were slightly above 4.0% for the entire year, about 8.5% lower than historical averages. Return spreads also were much below average (-8.7%). The default rate was again relatively low, 1.60%, and losses from default 1.1%. Despite 1998's low relative return, net returns (after deducting losses from defaults) over the last two decades continue to show a compound result over 12% per year and spreads over U.S. Treasuries of over 2.5% per year. New insurance of high yield debt in 1998 totaled a record $152 billion, with$120 billion of the total in the first seven and a half months. This report documents the high yield debt market's risk and return performance by presenting default and morality statistics and providing a matrix of average returns and other performance statistics over relevant periods of the market's evolution. Our analysis covers the period 1971-1998 for defaults and 1978-1998 for returns. In addition, we present our annual forecast of expected defaults for the next three years (1999-2001). Two other reports, published by the NYU Salomon Center, comprehensively document the performance of defaulted public bonds and bank loans and the default rate experience on syndicated bank loans

Defaults & Returns on High Yield Bonds: Analysis Through 1998 and Default Outlook for 1999-2001

Nineteen-ninety-eight was a mixed performance year for the high yield bond market in the United States, with much below average returns and spreads over default-risk-free Treasury Bonds but continued relatively low default rates and losses and another record year of new insurance. Returns and new insurance were excellent through the first seven months of the year but returns reversed and new issues dried up, temporarily, in the wake of August's Russians default and the emerging market turmoil, causing another short-term flight to quality. Returns in 1998 on high yield bonds in the U.S. were slightly above 4.0% for the entire year, about 8.5% lower than historical averages. Return spreads also were much below average (-8.7%).