Bonds: Reaching for Yield? Look to Return

Written by: Global Thought Leadership | January 19, 2018

Source: Bloomberg and Legg Mason, Jan 18, 2018. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The Bottom Line

  • With low rates still prevailing, it’s tempting to seek a pick-up in income by simply moving toward higher-yielding sectors.
  • In 2017, that strategy would have been generally successful for income as well as total return.
  • As a baseline, consider the broad-market benchmark Bloomberg Barclays U.S. Aggregate Index. Last year it provided a yield of 2.71%, while returning 3.54%. 
  • But the U.S. Corporate High Yield Index, with a yield of 5.72%, returned 7.50% -- substantially better.
  • However, the relationship between yield and return is hardly consistent. Indeed, the Global Aggregate- index provided a mere 1.66% yield in 2017, but offered a very substantial premium on return --7.39%, vs 3.54%.
  • The same was true comparing U.S. Corporate High Yield to Global High Yield – slightly lower yield, but stronger total return.
  • In both cases, investing in sectors with higher concentration and risk rather than following a conventional allocation --demands specialized investment expertise to navigate relatively thinly-traded markets.
  • It’s precisely these environments in which active investment management can be especially useful – both in conventional active strategies and in opportunistic and unconstrained fixed-income approaches focused on total return. 


An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Diversification does not guarantee a profit or protect against loss.

Outperformance does not imply positive results.

Active management does not ensure gains or protect against market declines.

High yield bonds are subject to increased risk of default and greater volatility due to the lower credit quality of the issues.

Asset allocation does not assure a profit or protect against a loss.

IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.