The table above outlines the excess returns by sectors of the bond marketplace over the last 10 years relative to the risk free (treasuries) rate. Not surprisingly, 2008 marked the single worst year of the period, with Q408 (un-annualized) and 2007, marking the second and third worst years respectively for most sectors. With spreads blown this wide, prices are markedly depressed, and I have little doubt that high yield spreads will move downward, equating to price appreciation of bonds in this category. The spread this wide anticipates massive defaults, and although some may occur, diversification in this sector should net some solid gains. Coupled with our orthodox sentiment that debt markets should lead the recovery, look to see Abnormal Return move out of 100% cash in the coming days, and into high yield ETFs.
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