Bond: Price and yield

CFA Level III Fixed Income
#1

Hi everyone,

Could someone help me out with the following question:

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Credit spread is sensitive to flows of funds in the credit markets. For example, large flows out of HY (selling) and into IG (buying) would likely depress HY prices (increasing their yield) while bidding up IG prices (decreasing their yield). In other words, the spread of HY to IG will increase and HY relative performance will suffer.

Query

Why does HY suffer performance wise if its yield goes up? I know its price would go down but doesn’t that mean from an investor’s perspective he can buy into a bond that makes a higher yield?

Thank you.

#2

When they say that performance will suffer, they mean for those who already hold the bonds.

You’re correct: those who buy the bonds will get a higher yield. What’s good for the buyer is bad for the seller, and vice-versa.

#3

Wow, thank you for the quick reply!

#4

My pleasure.