"With corporate-to-government spreads of some 750 basis points [7.5 percentage points], there's a lot of cushion there to be wrong," says Prudential's Collins. High yield "is priced for a 7 percent annual default rate and the default rate is actually closer to 2 percent."
Junk bonds may be the investment with the scariest name, and clearly, they should be used only to compliment a well-rounded fixed-income and equity portfolio. But investors who are not willing to blend in high yield may just risk a missed opportunity.
See U.S. News's top-ranked high-yield bond funds:
Fidelity Capital and Income (FAGIX): down 6.5 percent YTD, up 7 percent over five years; high risk rating within category; above-average 0.76 percent expense ratio.
TIAA-CREF High Yield (TIHYX): down 0.9 percent YTD, up 6.8 percent over five years; below-average risk rating within category; average 0.4 percent expense ratio.
Federated Institutional High Yield Bond (FIHBX): down 0.7 percent YTD, up 7.1 percent over five years; average risk rating within category; average 0.49 percent expense ratio.
John Hancock II U.S. High Yield (JIHLX): up 0.3 percent YTD, up 6.6 percent over five years; below-average risk rating within category; above-average 0.81 percent expense ratio.
Old Mutual Dwight High Yield (ODHYX): down 0.8 percent YTD, up 18 percent over three years; below-average risk rating within category; above-average 0.8 percent expense ratio.