Marks notes high yield bonds currently offer 7-8% yields, close to historical equity returns with different tax treatment.
“So today you can buy high yield bonds, whether it be The US or Europe or variations on that theme, what we call low grade credit.”
Marks explains that in high yield bonds, identifying which bonds to avoid matters more than which to buy.
“if there are a 100 high yield bonds out there and they're all 8% bonds, and you know that 90 will pay and 10 will default, it doesn't matter which of the 90 that pay you buy because they're all 8% bonds, they all get the same return.”
Marks reports Oaktree's high yield default rate is roughly one-third the market average over forty years.
“And so, over the last forty years, on average, something like 3.6 or 3.7% of all high yield bonds have gone into default every year, and our default rate has been roughly a third.”
Marks reports that in his 48 years, 99% of bonds paid interest and principal as promised.
“in our experience, ninety nine percent of the bonds have paid interest in principle as promised.”