This shows the yield premium (if any), at any point in time (i.e., the amount to compensate investors for risks, other than expected default risk, involved, e.g., liquidity, unexpected losses, flights to quality, etc).
The results are as follows:

Recovery rates
Default 20.00% 30.00% 40.00%
10.00% 12.42% 11.31% 10.20%
15.00% 18.11% 16.35% 14.58%
17.50% 21.22% 19.10% 16.97%
20.00% 24.52% 22.02% 19.52%

If we assume Armageddon with default rates of 17.5% and 20% recovery rates, I need to be promised a yield to maturity of 21% to breakeven with treasuries. Current yields to maturity of Junk bonds (JNK) is 21%, which is the breakeven point for my base case scenario. Anything better, junk bonds will deliver handsomely, and if these assumptions are too optimistic then it is not worthwhile investment. It seems that the promised yield for junk is at the edge, leaving no margin of safety for errors in my assumption and calculations.

IRR Cash Flow Analysis
The problem with BEY analysis is that it does not take account for holding periods and cash flows. So I will conduct an IRR cash flow analysis, it is the same that I made in my earlier post. Again the assumption, and they are unrealistically pessimistic:

1. 5 year holding period
2. 17% default rate throughout the holding period of 5 years, never will happen. You might get two years of high defaults.
3. 20% recovery rate throughout the holding period.
4. I assume I am buying Junk at 60 cents to the dollar.
5. Average coupon rate of either JNK or HYG is 8.7%
6. defaulted bonds are assumed non workable and will be removed from books, another unrealistic scenario, some of the defaulted bonds will be put to special service firms that will rework payments.

The results are as follows (all figures are with $1):
Year: 1 2 3 4 5
Par value $ 1.00 $ 0.83 $ 0.69 $ 0.57 $ 0.47
Coupon pmts $ 0.07 $ 0.06 $ 0.05 $ 0.04 $ 0.03
Defaults $ 0.17 $ 0.14 $ 0.12 $ 0.10 $ 0.08
Recovery $ 0.03 $ 0.03 $ 0.02 $ 0.02 $ 0.02
Net cash Flow $ 0.11 $ 0.09 $ 0.07 $ 0.06 $ 0.52 (return of principal:$.47)

My IRR is 9.57%, that return can be achieved by investing in more secured debt instruments.

Conclusion:
I have backed away from my earlier conclusion in my previous post and I am less enthusiastic about junk bonds. The investment appeal rests with the assumption of defaults and recoveries. If you think that defaults and recoveries are going to be better than priced by the market then you have a good investment. If not then High Yield debt is appropriately priced by the market.

My problem with the junk bonds is that I am not getting a bargain. There is no margin of safety for potential errors in my analysis. To do this deal I need better promised yield from junk or better debt seniority, which will entail better recoveries and margin of safety.