#2 Resist High-Priced Junk Bonds
Domestic high-yield bonds (otherwise known as junk bonds) have had a tremendous ride over the last several years. Low default rates and a thirst for yield have been tremendous drivers of asset prices in this sector. However, valuations have appeared to reach an extreme level,which has in turn led to lower yields for new money being added to this space.
If you already own a junk bond ETF such as the iShares High Yield Corporate Bond ETF (HYG), I would continue to hang onto the position with the expectation that we may see a shift in credit at some point that would necessitate an exit from this holding. Prices are not indicating any kind of problem as yet, and the income streams are still solid for early adopters. However, there will come a time when it will make sense to switch to higher credit quality areas such as investment grade corporate bonds or mortgage securities.
One possible alternative that I believe is offering a more attractive value proposition with a comparable yield is the iShares JP Morgan USD Emerging Market Bond ETF (EMB). This ETF sports a yield of just under 5% and is still trading below its 2013 highs.