High yield junk bonds do better in a slow growth economy

AT first glance, high-yield bond funds had a strong start to 2016 with a first-quarter gain of 2 per cent. But if you were paying closer attention, the ride was anything but smooth.

In the first six weeks of the year, the largest high-yield bond fund, BlackRock High Yield Bond, lost 4.6 per cent, and the biggest exchange-traded fund, iShares iBoxx High Yield Corporate Bond, shed more than 5 per cent. During that time, the Vanguard Total Bond Market index fund, the largest fund that sticks with stodgy Treasurys and other high-grade bonds, gained 2.4 per cent.

The steep losses through mid-February were the latest illustration that high-yield bonds are an unequivocal failure when it comes to delivering on the classic role of fixed-income investments: ballast that steadies your portfolio when stocks are off on one of their depressive jags.