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Today’s Risk: Foregoing Income by Exiting Strategic High Yield

This post was written by Christian Brobst, Calamos Vice President, Portfolio Specialist.

The predominant opinion in the realm of high yield is that spreads have nowhere to go but up.

With an option-adjusted spread of 378 basis points as of the market close on August 15, the Bloomberg Barclays U.S. High Yield Index has certainly seen a significant drop from levels of over 700 basis points in early 2016. If historical relationships provide any insight, spread levels in the context they are in today do not necessarily spell imminent trouble for the high yield market. We see no signs of recession, and defaults continue to run at historically low levels.

Since Bloomberg Barclays started tracking the option-adjusted spread of its benchmark in 1994, the market has gone through two extended periods where spreads stayed below 400 basis points, as measured by monthly closes.

how much longer will spreads remain range-bound

From both January 1994–July 1998 (55 months) and again from June 2004–June 2007 (37 months) spreads did not close above 400 at any month end. By contrast, spreads have been sub-400 only since January 2017 (seven months). The yield to worst of the index was 5.73% as of August 15, 2017.

If spreads were to trade range-bound over a more extended period of time, investors would be giving up a core source of income by exiting strategic high yield allocations now based on concerns of spread widening.

Calamos believes in a disciplined, diversified approach within the fixed income allocation, with high yield representing a component of that allocation. Advisors, for more information, please talk to your Calamos Investment Consultant at 888-571-2567 or [email protected].


Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. The views and strategies described may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations.

Bloomberg Barclays U.S. Corporate High Yield Index is an unmanaged index that is comprised of issues that meet the following criteria: at least $150 million par value outstanding, maximum credit rating of Ba1 (including defaulted issues) and at least one year to maturity.

Yield to worst is the lowest potential yield that can be received on a bond without the issuer actually defaulting.

Option-adjusted spread (OAS) is the yield spread which has to be added to a benchmark yield curve to discount a security's payments to match its market price; uses a dynamic pricing model that accounts for embedded options and is usually measured in basis points.

Before investing carefully consider the fund’s investment objectives, risks, charges and expenses. Please see the prospectus and summary prospectus containing this and other information or call 1-800-582-6959. Read it carefully before investing.


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