This commentary is written by Martin Fridson, a high-yield market veteran who is chief investment officer of Lehmann Livian Fridson Advisors LLC as well as a contributing analyst to Leveraged Commentary & Data.

In 2022, bond market volatility has easily surpassed its levels over the past decade. Default-risk free Treasuries and investment-grade corporates have nearly matched their volatility during the Great Recession. High-yield bonds, in contrast, have not been as volatile as they were in that period. Although elevated from 2012-2021 levels, volatility in high-yield this year is lower than it is for investment-grade bonds.

The table below shows year-to-date daily standard deviations of total return for various asset categories. For comparison, the table also displays data for the previous decade, the Great Recession, and three years in which the ICE BofA US High Yield Index posted negative returns. Note that the ratings-based breakdowns of that index are not available prior to Dec. 31, 1996.

Prior to this year's sample, in all periods other than the Great Recession, Treasuries’ volatility remained in a narrow range of 0.240% to 0.313%. Similarly, investment-grade corporates’ volatility never veered outside a 0.243% to 0.333% range. This year, both of those higher-quality asset categories have been nearly as volatile as they were in the Great Recession.

High-yield has likewise been more volatile this year than in any period shown except the Great Recession. Unlike its higher-quality counterparts, however, high-yield has been only 71% as volatile as it was in that severe economic downturn. The comparable figures for Treasuries and IG corporates are 97% and 95%, respectively.

There is precedent for high-yield’s comparatively favorable results in 2022, highlighted by a posting of lower absolute volatility than IG corporates. In 2000, the year of the Telecom/Media/Tech bust, and 1994, when unexpected Fed tightening roiled financial markets, HY was noticeably less volatile than either Treasuries or IG corporates. It was only during the Great Recession and the Great Debacle of 1990, when the high-yield market had a near-death experience in conjunction with a recession and the failure of many overleveraged buyouts, that HY’s volatility exceeded that of both Treasuries and IG corporates.

Reassuringly to those who feel most comfortable when fact conforms with theory, volatility increased with each step down the quality scale from Treasuries to high-yield over the previous decade. Within high-yield, that relationship held for the rating categories in all periods shown. Also noteworthy in the HY ratings breakdown is the fact that the riskiest tier, CCC & Lower, has been only 49% as volatile this year as it was in the Great Recession.