Historical default rate of Vanguard VWEAX High Yield Bond?

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racy
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Historical default rate of Vanguard VWEAX High Yield Bond?

Post by racy »

Where can one find the historical default rate of this fund? And, the outcome of the loans (actual interest/penalties/fees paid vs the loans' original interest)? I've searched but can't find anything. I'm not asking about the appropriateness of this fund in a portfolio: I understand the risks. I'm just curious about the actual default data.
Thank you.
dbr
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Re: Historical default rate of Vanguard VWEAX High Yield Bond?

Post by dbr »

I don't know but you might find some quantification in the factor analysis for fixed income in Portfolio Visualizer comparing term and credit factors for different funds.

It could be that delving into the literature for fixed income factors would show how the credit factor relates to defaults, etc.
illumination
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Re: Historical default rate of Vanguard VWEAX High Yield Bond?

Post by illumination »

Vanguard uses the term "higher rated junk bonds" to describe the holdings, but its title is High Yield. Junk bonds have a default rate of 6-7%. High yield bonds have a default rate under 1%. So maybe they are somewhere in the middle of those figures as a guess?

https://www.fitchratings.com/research/c ... 12-08-2021
alex_686
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Re: Historical default rate of Vanguard VWEAX High Yield Bond?

Post by alex_686 »

illumination wrote: Wed Nov 24, 2021 3:23 pm Vanguard uses the term "higher rated junk bonds" to describe the holdings, but its title is High Yield. Junk bonds have a default rate of 6-7%. High yield bonds have a default rate under 1%. So maybe they are somewhere in the middle of those figures as a guess?

https://www.fitchratings.com/research/c ... 12-08-2021
To extend a bit, you are kind of asking the wrong question.

There is a strong incentive for fund to offload bonds prior to default. Funds can only hold a small minority of illiquid assets. IIRC it is in the 5% range. Defaulted bonds fall into this category. Thus most funds will off-load bonds and take a 50% loss rather than take a chance with defaulted bonds.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Valuethinker
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Re: Historical default rate of Vanguard VWEAX High Yield Bond?

Post by Valuethinker »

illumination wrote: Wed Nov 24, 2021 3:23 pm Vanguard uses the term "higher rated junk bonds" to describe the holdings, but its title is High Yield. Junk bonds have a default rate of 6-7%. High yield bonds have a default rate under 1%. So maybe they are somewhere in the middle of those figures as a guess?

https://www.fitchratings.com/research/c ... 12-08-2021
How do you define the difference between "High Yield bonds" and "junk bonds"?

As far as I know junk bonds is simply the older term for HY.

And the definition is "credit rated below BBB-/ Baa3".
illumination
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Re: Historical default rate of Vanguard VWEAX High Yield Bond?

Post by illumination »

Valuethinker wrote: Thu Nov 25, 2021 7:39 am
illumination wrote: Wed Nov 24, 2021 3:23 pm Vanguard uses the term "higher rated junk bonds" to describe the holdings, but its title is High Yield. Junk bonds have a default rate of 6-7%. High yield bonds have a default rate under 1%. So maybe they are somewhere in the middle of those figures as a guess?

https://www.fitchratings.com/research/c ... 12-08-2021
How do you define the difference between "High Yield bonds" and "junk bonds"?

As far as I know junk bonds is simply the older term for HY.

And the definition is "credit rated below BBB-/ Baa3".
I don't know where the line is drawn, but the data I've seen is "high yield" and "junk bonds" have different default rates.

"Junk bonds are of course risky; ratings agency S&P Global predicts default rates there at 7% by year-end, from 6.6% in December 2020. In contrast, defaults among investment grade firms are near-zero; even BBB-rated securities, the lowest investment grade rung, boast a historical 0.3% default rate."
https://www.reuters.com/legal/litigatio ... 021-05-27/

__________

“The default rate is expected to fall to 0.8% by October end, a level last reached in February 2014,” said Fitch Senior Director Eric Rosenthal

ttps://news.bloomberglaw.com/bankruptcy-law/high-yield-bond-default-rate-to-fall-below-1-in-october-fitch
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