By the traditional measurement method, the high-yield default rate for the first half of 1991 was 5.48 per cent. When the method of calculation is revised to subtract from the denominator the amount of already defaulted debt, the default rate for 1991’s first half rises to 6.26 per cent. The associated default loss rate increases to 4.98 from 4.36 per cent.

An alternative technique for measuring default rates and losses, the mortality approach, includes all grades of bonds and explicitly considers the age of the bond as well as its original rating. This approach shows that B-rated securities were the hardest hit in recent years. Between 1989 and 1990, the cumulative five-year mortality rate for these securities increased from 11.56 to 20.87 per cent.

Over the 1978–90 period, the return spread between high-yield bonds and Treasuries is virtually zero. Over the first half of 1991, however, the high yields outperformed Treasuries by a whopping 19.01 per cent. Adding the first half of 1991 to 1978–90 results pushes the long-run return on high-yield bonds above returns earned on Treasuries.