Why the VIX may point the way for high yield bonds

The so-called ‘fear index' is increasingly serving as an indicator of future high yield bond performance, according to Dave Bowen, manager of the $3.5bn Muzinich Short Duration High Yield fund.

Bowen said the strong correlation between the CBOE VIX volatility index and high yield bond spreads seen over the past 18-24 months could serve as a warning sign for managers. "The strongest correlation we have seen for high yield bonds has been the VIX, and that correlation has held up recently while the VIX has touched very low levels," he said. The VIX, which measures the expected future volatility of share prices over the next 30 days, has fallen as markets have rallied this year and dropped below 15 this week to touch its lowest level since June 2007. "It certainly seems to be...