Bondsavvy's Corporate Bond Returns

Through July 31, 2023, Bondsavvy had made 113 corporate bond recommendations.  These include 59 individual bonds we currently recommend as buy (32) or hold (27) and 54 bonds we previously recommended but have since recommended selling.  This corporate bond returns update discusses the drivers of the performance of the 59 corporate bonds we currently rate either buy or hold.

Corporate Bond Returns of Our Last Five Sets of Recommendations 

Bondsavvy presents subscribers new corporate bond recommendations during The Bondcast, a quarterly live webcast that includes subscriber questions and answers.  During each edition of The Bondcast, we typically present four to six new corporate bond recommendations.

We made our last five sets of recommendations on June 22, 2023, March 8, 2023, November 16, 2022, June 16, 2022, and April 6, 2022.  You can see the corporate bond returns of these and all other investment recommendations in the above tables.  

Given how aggressive the Federal Reserve was with increasing interest rates starting in early 2022, our recent recommendations were primarily bonds with high yield bond ratings and short term investment grade bonds.  These bonds are generally less sensitive to movements in the US federal funds rate. 

As we discuss in our corporate bond credit spreads blog post, corporate bond yields to maturity (YTM) are driven by the "benchmark US Treasury YTM" and the corporate bond's credit spread.  The benchmark US Treasury yield is the YTM of a US Treasury note, bond, or bill that has a similar maturity date to a specific corporate bond.  The smaller a corporate bond's credit spread is to its YTM will make that bond more sensitive to movements in US Treasury yields vs. changes in credit spreads.  For example, YTM movements of a corporate bond with a 5.00% YTM and a 0.50% credit spread will generally be driven more by changes in US Treasury yields than in changes in credit spreads.

Figure 1 compares the effective federal funds rate to the YTMs of the 2 year Treasury, 10 year Treasury, and 30 year Treasury.  As the Federal Reserve kept increasing the federal funds rate (black bar), US Treasury yields largely followed suit until late 2022.  There was then a divergence between short- and long-term US Treasury yields, as the 2 year Treasury continued increasing to 5.00% on March 7, 2023, while the 10 year Treasury and 30 year Treasury YTM have generally been trading between 3.30% to 4.00% since January 1, 2023.  

Figure 1: US Treasury Yields vs. the Effective Federal Funds Rate -- November 30, 2021-July 31, 2023

The good news

The good news is that -- compared to 2022 -- bond markets have generally stabilized.  Of our 23 most recent bond recommendations, 19 (83%) have been profitable thus far.  As these investment recommendations were made between April 6, 2022 and June 22, 2023, we are still early in our likely holding period of these bonds.  While it is way too early to declare any of these investments an ultimate success, we are pleased that our recent recommendations have made money in a difficult environment for bonds.

Please note that, within the 23 recommendations, there was one bond we recommended selling on July 13, 2023.  This was the Mercer International 5.125% 2/1/29 bond (CUSIP 588056BB6), which had a terrible Q1 2023 and, when sold, recorded a -0.73% total return.

The bad news

While there were some bright spots, many picks made between September 23, 2020 and January 12, 2022 have delivered weak performance.  These bond recommendations were made when US Treasury yields were extremely low.  As Treasury yields rose, many of these bonds, especially long-dated investment grade corporate bonds, fell sharply.  Since long-term investment grade corporate bonds are heavily impacted by changes in long-dated US Treasury yields, we believe it will take some time for these bonds to recover in price.  

Recent Movements in US Corporate Bond Credit Spreads

If a corporate bond has a high credit spread relative to a bond issuer's underlying financials, that bond generally has a good value.  Identifying these undervalued corporate bonds is a key Bondsavvy focus when we make new corporate bond recommendations.

Figure 2 tracks the historical credit spreads of four high yield corporate bonds we recommended April 6, 2022.  In Figure 2's legend, we provide generic information about each bond, including the issuer's industry and the bond's maturity date.  Subscribe to Bondsavvy to learn the names and CUSIPs of all Bondsavvy investment recommendations.

As shown in Figure 2, the credit spreads of these four high yield bonds generally moved up from the April 6, 2022 pick date until May 19, 2022, when we provided our quarterly recommendations update on The Super Bondcast.  These credit spreads have generally trended lower since September 9, 2022.  As of August 3, 2023, the credit spread of each of the four bonds was lower than it was on the April 6, 2022 pick date.

Figure 2: Historical Corporate Bond Credit Spreads of Four Recent Bondsavvy Recommendations -- April 6, 2022-August 3, 2023

What do these changes in credit spreads mean?

Even if underlying US Treasury yields are rising, a corporate bond's price can still increase if the credit spread falls by an amount greater than the benchmark Treasury YTM.  For several months after we issued these four recommendations, US Treasury yields rose and credit spreads rose.  This "double whammy" caused these high yield bond prices to fall.  The bonds have subsequently recovered some of their value, as the US Treasury market has stabilized and credit spreads for these bonds have fallen.

While falling credit spreads has been a good thing for these bonds, it does mean that a buyer of these bonds today will generally have less capital appreciation opportunity than buyers of the bonds in May 2022 when credit spreads were higher.  When credit spreads are relatively high, it means they have more room to fall.  The more a credit spread falls (assuming no change in underlying US Treasury yields), the more a corporate bond price can increase.

Corporate bond prices have rallied from lows reached in October 2022, as longer-term US Treasury yields have fallen and many high yield corporate bonds have risen due to strong recent financials of many issuers. This corporate bond returns update includes the following two sections related to BondSavvy's investment performance through January 31, 2023:

Section 1: Drivers of BondSavvy's Corporate Bond Returns

Section 2: Review of BondSavvy's Corporate Bond Returns vs. iShares Corporate Bond ETFs Through January 31, 2023

Section 1: Drivers of BondSavvy's Corporate Bond Returns

While many factors impact corporate bond returns, two of the largest drivers are the US Treasury market and the financial performance of our corporate bond issuers. Please read our corporate bond credit spreads blog post to learn how investment grade corporate bonds and high yield corporate bonds are impacted in different ways by these factors.

Financial Performance of Our Recommended Bond Issuers

In the second half of 2022, not a day went by without certain investing experts and talking heads saying we were already in a recession. Then, Q3 and Q4 2022 GDP growth came in at +3.2% and +2.9%, respectively, according to the US Bureau of Economic Analysis. In January 2023, the US economy added 517,000 jobs and unemployment fell to 3.4%.

While these figures point to a strong overall US economy, company earnings provide a clearer picture of how certain sectors of the economy are performing. It's this financial performance that can drive corporate bond prices, especially high yield corporate bonds, as these bond prices are generally more influenced by the issuing company's financial performance than investment grade corporate bonds.

Figure 1 shows the year-to-date 2022 revenue and EBITDA growth issuers of BondSavvy-recommended bonds reported through December 15, 2022. As of January 31, 2023, we rated 52 corporate bonds as either a 'buy' or 'hold.' These 52 corporate bonds were issued by 46 different companies, as, for certain issuers, we recommended two bonds of the same issuer. Of these 46 issuers, there were two that were involved in an asset sale transaction, and we are currently awaiting financials for both stand-alone entities. Therefore, the two below charts include the financial performance of 44 bond issuers.

Figure 1: Financial Performance of Companies Issuing BondSavvy-Recommended Bonds -- Reported Through December 15, 2022

Source: Company public filings and BondSavvy calculations

In Figure 1, we see the majority of our issuing companies have been growing. In the revenue chart on the left side of Figure 1, 33 of the 44 issuers reported positive revenue growth, with 17 issuers reporting year to date 2022 revenue growth of more than 10%. In year to date 2022 EBITDA, 28 of the 44 issuers reported growth, with 19 reporting EBITDA growth over 10%. Read our corporate bond leverage ratios blog post for more information on how EBITDA is calculated and why it's important.

While many of our corporate bond issuers reported strong year to date 2022 financials, others saw revenue and profitability declines. Certain of these companies were coming off a banner 2021, so some declines were expected. In addition, certain companies with weak 2022 financials had very large cash balances relative to their debt burden.

Two of our 46 issuers reported continued poor financial performance. These issuers have been cause for concern over the last several quarters and are working toward turning around their businesses. We update all of our buy/sell/hold recommendations each quarter based on issuing company financial performance and the updated prices of our recommended bonds. For companies like these two that have struggled over several quarters, we offer additional recommendation updates as these companies attempt to improve their performance.

Movement in US Treasury Yields

As discussed in our credit spreads blog post, movements in US Treasury yields can have a significant impact on investment grade corporate bonds in particular. As US Treasury yields rose during much of 2022, this caused many corporate bond YTMs to rise, and many bond prices to fall. As short term US Treasury yields rose to high levels in 2022, we began recommending a number of short term investment grade corporate bonds. Until then, our investment grade bond recommendations were generally longer dated and heavily impacted by movements in long term US Treasury yields.

As shown in Figure 2, US Treasury yields moved higher from November 30, 2021 until October 2022. Many believe that, during periods of rising interest rates, investors should always stick to short term bonds. The problem with this thinking, as shown in Figure 2, is that, during 2022, short term bond yields rose much faster than long term bond yields. From November 30, 2021 to October 24, 2022, the two-year US Treasury yield increased 3.98 percentage points, from 0.52% to 4.50%. During this same period, 30-year Treasury yields increased 2.62 percentage points. That said, due to their long term maturities, the prices of many long dated investment grade corporate bonds fell substantially.

Figure 2: US Treasury Yields vs. Effective Fed Funds Rate -- November 30, 2021 to January 31, 2023

Sources: United States Treasury and the Federal Reserve Bank of New York.

Since October 24, 2022, however, long term US Treasury yields began to fall, with the 10 year Treasury yield falling 0.73 percentage points (or 73 "basis points") and the 30 year Treasury yield falling 0.75 percentage points (75 basis points). These yields fell as inflation began to fall and investors believed the Fed would reduce the magnitude of further interest rate hikes.

While this drop in US Treasury YTMs caused many corporate bond prices to rally, investors must realize how volatile US Treasury YTMs can be. The rise in US Treasury yields caused corporate bond prices of many of the world's most profitable companies to fall to 60% of par value or lower during 2022. Investors can use these price drops to their advantage and purchase high quality bonds at compelling values.

Section 2: BondSavvy's Corporate Bond Returns vs. iShares Corporate Bond ETFs

We break out BondSavvy's corporate bond returns into two above tables: 1) corporate bond returns of our exited recommendations and 2) corporate bond returns of our current recommendations. Through January 31, 2023, BondSavvy had recommended 105 corporate bonds, of which, we have sold 53 and currently recommend 52 as either a buy or a hold.

Bonds We Sold During 2022

As most corporate bond prices fell during 2022, we did not see many opportunities to sell bonds. That said, we did sell four previous high yield corporate bond recommendations, all of which significantly outperformed the iShares HYG corporate bond ETF, as shown in Figure 3:

Figure 3: Recommendations BondSavvy Sold in 2022

BondSavvy generally sells bonds before maturity to secure capital appreciation and maximize total returns. In 2022, we held the Quad '22 date until maturity and achieved a 26.03% total return vs. 0.59% for the iShares HYG ETF. The Exterran Energy '25 bond was called in connection with the company being acquired by Canada-based Enerflex. Its acquisition by Enerflex, a company with a higher bond rating, caused the Exterran '25 bond price to increase, which was one of a limited number of corporate bonds to achieve capital appreciation in 2022.

As shown in Figure 3, at times, BondSavvy recommendations can significantly outperform the iShares corporate bond ETFs. As we will show in the next section, however, there can be times where our recommendations can underperform certain bond index funds. Since bond index funds typically own hundreds or thousands of bonds, their prices are generally less volatile than an individual bond. Individual bond investors must be able to accept this volatility as part of their investing. If they can, we believe an investor's long-term performance can outperform bond funds. At times, this outperformance can be significant.

All Exited Recommendations Through January 31, 2023

Through January 31, 2023, we had exited 53 of our 105 recommended bonds. Of the 53 bonds we sold, we outperformed the benchmark iShares LQD and HYG ETFs for 40 picks, or 75.5% of our recommendations. What's more, for 17 of our exited recommendations, we outperformed by more than 10 percentage points. Through January 31, 2023, there were only two cases where iShares outperformed BondSavvy by at least 10 percentage points. Those two cases related to two JCP bond recommendations, where the company filed for Chapter 11 in the wake of Covid-19 store closures in 2020.

Corporate Bond Returns of Current Buy/Hold Recommendations

In the Corporate Bond Returns of Current Recommendations table above, we show the performance of the 52 bonds we currently rate either buy or hold vs. the iShares corporate bond ETFs. While we have been pleased with the performance of our 53 exited recommendations, registering beats in 40 of 53 vs. the iShares LQD and HYG ETFs, the performance of many current buy/hold recommendations has not met expectations.

Many corporate bonds hit their lows in October 2022, and a good number have recovered since then. That said, there is a long way to go for many of our recommendations. We can break the performance of our buy/hold recommendations into three groups based on pick dates:

Group 1: April 6, 2022-November 16, 2022 Pick Dates

In this group, we have outperformed the iShares corporate bond ETFs for 9 of the 15 picks. Since these picks are less than a year old, it is not time to declare victory or spike the football. That said, as interest rates began increasing earlier in 2022, we focused our recommendations on high yield and short-term corporate bonds. These bonds have, generally speaking, held their value, but there is a long way to go before these become successful long-term recommendations.

Group 2: December 17, 2020-January 12, 2022 Pick Dates

While we had two successful exits from recommendations in this group (Exterran '25 +14.36% and Laredo '25 +31.71%), many of these 22 recommendations have been disappointing. These picks include a number of long-dated investment grade bonds that fell as Treasury yields spiked and several high yield issuers that reported weak financials or that had their bonds sell off for other reasons.

Group 3: September 26, 2017-September 23, 2020 Pick Dates

This group shows the benefit of longer holding periods with our recommended bonds. In this group of 15 recommendations, we have outperformed in 11 picks. Since the yields of our bonds are generally higher than those offered by the leading bond funds, nearly three-quarters of these picks have outperformed, and some of them significantly. Two of the picks (issued by the same company) have been damaged by the weak financial performance of the issuing company. There was concern this company would be filing for Chapter 11; however, it was able to secure a financing package that gave it an opportunity to turn around its business. The bond prices of these recommended bonds have increased since January 31, 2023; however, the company has a very long way to go.

Through October 31, 2022, BondSavvy has made 100 corporate bond investment recommendations.  Of these 100 picks, we have sold (or "exited") 53 of them.  We recommended five new bonds November 16, 2022; however, these picks are not yet included in our performance data since they were made only two weeks before the end of the November 30, 2022 corporate bond returns update period.  

As shown above in the Corporate Bond Returns for Exited Recommendations table, for our 53 exited recommendations, we have beaten the iShares LQD and HYG corporate bond ETFs 40 times, or 75.5% of our exited bond picks.  For 17 of our exited recommendations, we have beaten the iShares ETFs by at least 10 percentage points.  For our 53 exited recommendations, there have only been two cases where the iShares corporate bond ETFs outperformed BondSavvy by 10 percentage points or more.

Corporate Bond Return for Exterran 8.125% '25 Exited Recommendation

Bond price appreciation has been rare in 2022; however, our recently exited Exterran '25 recommendation (CUSIP 30227KAE9) is one of the few corporate bonds that increased in price during 2022.

Exterran Energy was a global provider of natural gas processing and treatment solutions.  We recommended the Exterran bond on January 12, 2022 at a price of 94.61.  Shortly after we made the recommendation, Canada-based Enerflex announced it agreed to acquire Exterran.  As Enerflex was deemed to have a higher credit quality than Exterran, the Exterran bonds increased in price to above par value. 

When one company acquires another company, the acquiring company typically assumes the debt of the company being acquired.  This is why the Exterran bond increased in price, as the bond would now be the obligation of a company with a higher corporate bond rating.  

That said, as part of the Exterran acquisition, Enerflex obtained new financing at a lower rate than the 8.125% Exterran was paying on its bonds.  As a result, Exterran called the bonds October 21, 2022 at a price of 102.03.  Assuming a 94.61 purchase price and a 0.1-point markup on the purchase, the investment generated a total corporate bond return of 15.30% compared to a -13.51% return of the iShares HYG ETF during the same period.

Exited Returns Have Outperformed Most Recent Recommendations  
Above, we displayed our corporate bond returns in two separate areas: Exited Recommendations and Current Recommendations.  While we have been pleased with the performance of our exited recommendations, a number of our current recommendations have performed poorly.

The greatest number of bonds with weak performance have been long-dated investment grade corporate bonds, which have been hurt by higher US Treasury yields.  As shown in Figure 1, long-term US Treasury yields were on an upward path until October 24, 2022 when the 10 year US Treasury YTM was 4.25% and the 30 year US Treasury YTM was 4.40%.  These US Treasury YTMs fell significantly from October 24 until November 30, 2022, with the 10 year US Treasury YTM falling 0.57 percentage points (or 57 "basis points") and the 30 year US Treasury YTM falling 0.60 percentage points (or 60 basis points).   

Figure 1: US Treasury Yields vs. Effective Fed Funds Rate: November 30, 2021-November 30, 2022 

Many investors automatically believe that investing in short-term bonds is always the best play in a rising interest rate environment.  Unfortunately, that strategy hasn't been a good one in 2022, as short-term bond yields have risen substantially more than long-term bond yields.  As shown in Figure 1, the two-year US Treasury YTM has increased 3.86 percentage points (386 basis points) from November 30, 2021-November 30, 2022, while the 30-year US Treasury YTM has increased 2.02 percentage points (202 basis points) over the same time period.

While the prices of short term investment grade corporate bonds have generally fallen less than long term investment grade corporate bonds in 2022, purchasing short term investment grade bonds in 2021 was not compelling, as most YTMs of such bonds were very low. For example, the YTM on the Apple 3.45% 5/6/24 bond (CUSIP 037833AS9) was 0.47% on August 2, 2021 when the bond traded at 108.15.  On November 30, 2022, the Apple '24 bond was trading at a price of 98.52 and a 4.53% YTM.  

As short term bond yields began rising in 2022, we made four new short term corporate bond recommendations on June 16, 2022.  Such short term corporate bond investments will not be home runs, but they do enable investors to lock in 4-5+% YTMs over the next several years.

Other Factors Driving Corporate Bond Prices Lower in 2022

Apart from the negative impact of rising US Treasury yields, three of our high yield corporate bond recommendations have been hurt by weak issuing company financial performance.  Another high yield bond (High Yield Bond 4 from March 11, 2021) fell significantly in price, as the bond was assumed as part of an acquisition, and the acquiring company heaped billions of new senior debt on the issuing company.  This caused the bond's rating to fall, and its price fell with it.

The Exterran '25 bond is the only recommendation we have sold in the second half of 2022.  Falling bond prices will generally extend the holding time of our bond recommendations.  In addition, should issuing company fundamentals remain strong, we will often recommend subscribers purchase more of a bond that has fallen in price.

Many Bonds Still Available at Low Prices
As shown in our Current Recommendations tables, there are many corporate bonds priced in the 60s and 70s.  Many of these bonds are issued by the world's most profitable companies and can provide compelling upside opportunities with very low default risk.

The first half of 2022 was a rough one for bond investments, including many BondSavvy recommendations. We were pleased to see the market recover during July 2022, as 46 of our 48 bond recommendations achieved total investment returns of at least 1.86%, 34 returned at least 5%, and 20 picks returned at least 7%.

Figure 1 provides a summary of the investment returns our 48 corporate bond recommendations achieved during July 2022:

Figure 1: BondSavvy Investment Performance for July 2022 ⁽¹⁾

(1) Please see Figure 2 for additional information on our investment return calculations.

As of July 29, 2022, BondSavvy's 48 corporate bond recommendations included 28 high yield corporate bonds, 16 long term investment grade corporate bonds, and 4 short term investment grade corporate bonds.  Figure 2 shows the July 2022 performance of all corporate bond picks made prior to June 16, 2022 and, for our June 16, 2022 picks, their performance since the pick date. We also compare each group of bonds to the benchmark iShares corporate bond ETF.

Subscribe to BondSavvy to learn the names, CUSIPs, and investment rationale for each corporate bond recommendation.

Figure 2: Summary of July 2022 Corporate Bond Returns for Each Bond Recommendation

July 2022 Corporate Bond Returns vs. iShares Corporate Bond ETFs

We outperformed the iShares HYG high yield corporate bond ETF for 14 of our 28 (50%) high yield bond recommendations. We outperformed the iShares LQD investment grade corporate bond ETF for 14 of our 16 (87.5%) long-term investment grade bond recommendations. Thus far, all of our June 16, 2022 short-term bond recommendations have outperformed the iShares SLQD 0-5 year investment grade corporate bond ETF.

Key Drivers of July 2022 Corporate Bond Returns

A key driver of strong July 2022 corporate bond returns was the fall in US Treasury yields since they reached a peak on June 14, 2022. As shown in Figure 3, YTMs of the 2-, 10-, and 30-year Treasury all fell, with the 10-year US Treasury YTM falling the most: 82 basis points (or 0.82 percentage points) from 3.49% to 2.67%.

Figure 3: Year-to-Date 2022 US Treasury Yields

Credit spreads for many of our recommended corporate bonds fell as well. For example, the credit spread for High Yield Bond 5 fell 90 basis points (bps), from 5.38% on June 30, 2022 to 4.48% on July 29, 2022. This was a big driver of its strong July 2022 corporate bond return. The credit spread of High Yield Bond 1, July 2022’s best performer, fell 93 bps. This bond price increased more than that of High Yield Bond 5 due to Bond 1's longer-dated maturity.

CASE STUDIES OF CORPORATE BOND RETURNS FOR EXITED BONDSAVVY RECOMMENDATIONS

Many investors believe that 'interest rates' are the only thing that impact bond prices. We have two real-world examples that will hopefully dispel this notion once and for all.

On September 26, 2017, during the premier edition of The Bondcast, we recommended Verizon 3.85% 11/1/42 (CUSIP 92343VBG8) and Albertsons 7.45% 8/1/29 (CUSIP 013104AF1). Understanding the changes in these bond prices helps investors better understand what to look for when investing in bonds and what causes bond prices to rise and fall.

Verizon 3.85% '42 Case Study

Verizon is an investment-grade issuer, as its bonds are rated Baa1/BBB+ by Moody's and S&P, respectively. Bonds rated at least Baa3/BBB- are deemed 'investment-grade,' meaning that the credit rating agencies believe they have a lower risk of default than 'high-yield bonds,' which have lower ratings.

In the below chart, we compare changes in the price of the Verizon 3.85% 11/1/42 to its benchmark US Treasury 2.75% 11/15/42 (CUSIP 912810QY7). The reason it is called the 'benchmark' is that the maturity date of this Treasury bond is almost identical to that of the Verizon bond. The price of this US Treasury bond moves up and down based on the demand for this government bond. As the price for this Treasury bond increases or decreases, its yield to maturity ("YTM") moves in the opposite direction. The yield to maturity of this Treasury bond is telling investors what the 'risk-free' investment return is for a Treasury bond that matures 11/15/42, as the US Treasury is deemed to have no default risk. (We don't believe the US government has zero risk of defaulting, but that discussion is for another post.)

When the Verizon bond -- and nearly all other investment-grade corporate bonds -- are quoted on a trading desk, they will be quoted as a spread to the benchmark Treasury. This spread is referred to as the credit spread. For example, suppose:

Verizon 3.85% '42 YTM: 4.22%

US Treasury 2.75% '42 YTM: 2.89%

Credit spread:1.33%

The Verizon bond's YTM is the result of changes in the benchmark Treasury AND the credit spread. As Verizon's credit quality improves, its credit spread will typically shrink, as investors will require less return above the benchmark Treasury to compensate them for the extra credit risk they are taking. When the credit spread shrinks, the bond's yield to maturity decreases and the price of the bond increases. Similarly, if the benchmark Treasury yield moves up or down, that component of the Verizon bond's YTM will also move up or down.

A real-life example is shown in the below charts, which show bond price changes for the Verizon '42 bond we recommended September 26, 2017 and its benchmark Treasury. Since we recommended the Verizon bonds, they have increased in price 12.5 points, from September 26, 2017 through June 30, 2019, generating a total return of 21.4%, while the benchmark Treasury increased 4.3 points during the same time period. The Verizon bond price increase happened because the credit spread for these bonds shrunk, as Verizon has been reporting strong financial results. While moves in the '42 Treasury bond do impact the price of the Verizon '42 bond, the two bonds do not move in lockstep. In this case, Verizon's strong operating performance enabled the bonds to increase in price well beyond the price increase of the benchmark US Treasury bond.

Sources: Historical prices are from FINRA market data. The prices used to calculate the Verizon bond's total return are from Fidelity.com. Total returns include interest income accrued and/or received and capital appreciation. Returns do not contemplate re-investment of interest income. Total returns are not annualized returns.

Albertsons 7.45% '29 Case Study

Bonds rated below investment grade (aka 'high-yield bonds') do not trade in relation to their benchmark Treasury as shown in the below chart, which compares changes in the Albertsons 7.45% '29 bond (CUSIP 013104AF1) we recommended to its benchmark 6.125% 8/15/29 Treasury (CUSIP 912810FJ2). High-yield bonds are known as a 'credit investment,' and their price is driven by changes in the underlying credit quality of the bond issuer. For example, for the first half of 2017, the Albertsons bonds were trading at or above 96. Then, in June 2017, Amazon announced it was purchasing Whole Foods, and many investors thought Albertsons wouldn't be able to compete, which caused the bonds to fall into the 70s, at which point we recommended the bonds at 78.50 on September 26, 2017.

Since then, Albertsons has delivered strong financial performance, and the bonds increased in price 18 points from the date we recommended the bonds through June 30, 2019. You'll see the benchmark Treasury fell 2.4 points during this same time period, and movements in the prices in both bonds were not correlated.