Over the next decade, we expect investment- shorter investment horizons, our research grade bonds to return 4.8%–5.8% and high-yield finds that for investors with a sufficiently long bonds to return 6.6%–7.6% per year. These investment horizon who are looking to maximize returns are not dissimilar from our forecasted their end-of-period wealth, credit can improve equity returns for the next decade, but they also portfolio outcomes. This improvement comes come with equity-like volatility. Although this from credit’s premium over Treasuries and its 10 volatility may be concerning for investors with low correlation with equity. FIGURE II-7 Credit spreads are near fair value, but risks are elevated because of the macro environment a. Investment-grade % d  ea spr  air-vale ed t range s  u dj Investment- a -  grade OAS n o i t  Investment- p O  grade OAS fair vale –             Notes: Investment-grade credit spreads are yields on bonds characterized by their low default risk (credit rating above BBB–) above the yield on a Treasury security of the same duration. Data are from July 1976 to June 2022. Fair value is specified by an Ordinary Least Squares (OLS) regression model where the dependent variable is the investment-grade option-adjusted spread (OAS) of the Bloomberg U.S Corporate Investment Grade Index and the explanatory variables (all one month lagged) are our proprietary Vanguard leading economic indicator (VLEI), the 10-year Treasury yield minus the 2-year Treasury yield (yield curve slope), the debt-to-profit ratio (ratio of U.S. debt outstanding of nonfinancial corporations to U.S. nonfinancial corporate business profits before tax), and year- on-year change in quarterly corporate profits. Sources: Vanguard calculations, based on data from Bloomberg, Refinitiv Datastream, and Barclays Live, as of September 30, 2022. b. High-yield % d ea spr ed t s u dj a Fair-value - n range o i t  p High-yield OAS O High-yield  OAS fair value         Notes: High-yield credit spreads are yields on bonds characterized by their elevated default risk (credit rating BB+ or lower) above the yield on a Treasury security of the same duration. Data are from January 1987 to June 2022. Fair value is specified by an Ordinary Least Squares (OLS) regression model where the dependent variable is the high-yield option-adjusted spread (OAS) of the Bloomberg U.S. Corporate High Yield Index and the explanatory variables (all one month lagged) are our proprietary Vanguard leading economic indicator (VLEI), the 10-year Treasury yield minus the 2-year Treasury yield (yield curve slope), the debt- to-profit ratio (ratio of U.S. debt outstanding of nonfinancial corporations to U.S. nonfinancial corporate business profits before tax), and year-on-year change in quarterly corporate profits. Sources: Vanguard calculations, based on data from Bloomberg, Refinitiv Datastream, and Barclays Live, as of September 30, 2022. 10 Our VCMM forecast suggests that median correlations between U.S. equities and investment-grade and high-yield bonds will be 0.22 and 0.31, respectively. 44