Why Junk Bonds Might Be the Unexpected Risk Reducer with Stocks at Record Highs

With equity markets trading near all‑time highs, some portfolio managers at AllianceBernstein are turning to high‑yield corporate bonds (aka “junk bonds”) as a strategic hedge. They argue that shifting part of a stock portfolio into high‑yield bonds could help reduce volatility without giving up much return—especially in an environment of elevated yields and sluggish growth. Over the past 25 years, high‑yield corporates have averaged about 7.6% per year, versus roughly 9.8% for the S&P 500, but with nearly half the volatility. The logic: when growth is weak and stock valuations are stretched, high‑yield bonds might outperform equities, offering a smoother ride. But there are two caveats: If the economy plunges into recession, high‑yield bonds are risky and have suffered in the past (e.g., 2008 and the COVID‑era downturns). If the economy instead accelerates thanks to a surprise catalyst (e.g., AI‑led boom), equities may soar and bonds may lag. In short: junk bonds might feel counterintuitive as a “less‑risky” play—but in the current market backdrop, they might make sense as a tactical tool. #junkbonds #highyield #investingstrategy #portfoliohedge #SlimScan #GrowthStocks #CANSLIM