The 2020/2021 lockdowns had a surprising effect on the high-yield corporate bond market, making so-called “junk bonds” too big to fail. Investors are starting to realize the stability and large dividends that can be obtained from these corporate-bond funds, particularly the PIMCO Dynamic Income Fund (PDI). PDI, yielding 13.8%, managed by PIMCO, has shown substantial growth in dividends and provides special dividends regularly. Despite the skeptical view of junk bonds, the market has seen significant gains in corporate-bond funds, including PDI, highlighting the value of these investments.
The history of high-yield corporate bonds dates back to the late 1970s when they were first introduced as a way for struggling companies to raise cash. However, by the late 1980s and early 1990s, high-yield bonds faced defaults due to market changes and economic instability. The subprime mortgage crisis in 2009 prompted the Federal Reserve to step in and stabilize the market, resulting in lower default rates for the next decade. Despite initial fears of defaults in 2020, the Fed intervened again, reassuring investors that junk bonds were unlikely to fail. The market slowly realized the benefits of junk bonds in 2024, including high yields, discounts on bonds, and a strong economy backed by the Fed’s support.
PDI, managed by PIMCO, goes beyond corporate junk bonds by investing in a variety of credit assets, including government agency bonds and mortgage bonds. The fund aims to capitalize on oversold low-rated assets, generating income for investors through dividends. PDI’s dividend history shows growth over the years, with additional special dividends paid out from income windfalls. Despite not fully recovering from the events of 2020, PDI has become an attractive investment option in recent months as the market recognizes the value of junk bonds.
Investors can benefit from the stability and high dividends offered by corporate-bond funds like PDI, especially in the current market environment. The impressive performance of these funds, driven by the rediscovery of junk bonds, proves that these investments are far from being “junk.” PDI’s track record of growing dividends and paying special dividends makes it an appealing choice for income-oriented investors. Overall, the resurgence of junk bonds in the market presents new opportunities for investors seeking stable income and strong returns in the high-yield corporate bond sector.
