High-yield bond

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High-yield bond

High-Yield Bond

A bond with a low rating. Bonds rated less than Baa3 by Moody's or BBB- by S&P or Fitch are considered high-yield bonds. They have higher yields because they have a higher risk of default on the part of the issuer. High-yield bonds are considered sufficiently high-risk that the law does not allow banks to invest in them. They are also called low-grade bonds, and, informally, junk bonds.

high-yield bond

See junk bond.

High-yield bond.

High-yield bonds are bonds whose ratings from independent rating services are below investment grade.

As a result, to attract investors, issuers of high-yield bonds must pay a higher rate of interest than the rates that issuers of higher-rated bonds with the same maturity are paying. The higher rate translates to more income, which is the higher yield.

High-yield bonds may also be described, somewhat more graphically, as junk bonds.

References in periodicals archive ?
However, Altman (1992) suggests that the 3 to 5 percent coupon risk premium originally placed on new-issue, low-grade bonds is justified by subsequent default losses.
We support the hypothesis that the entire ex ante default risk premium on original-issue, low-grade bonds is justified by actual ex post default losses and that the initial risk premium fairly and efficiently compensates investors for ex post default losses.
The issue of whether low-grade bonds fairly and efficiently price default risk is important since this market is an important source of capital for many firms.
Patel, 1991, Returns and Volatility of Low-Grade Bonds 1977-1989, Journal of Finance, 46(1): 49-74.
Patel, 1991, "Returns and Volatility of Low-Grade Bonds 1977-1989," The Journal of Finance (March), 49-74
Green, 1991, "The Investment Performance of Low-grade Bonds Funds," Journal of Finance (March), 29-48
1994, "Unravelling the Low-Grade Bond Risk/Reward Puzzle," Financial Analysts Journal (July/August), 32-42.
New merger proposals dropped off noticeably during the first part of 1990 as a consequence of the virtual unavailability of funds for new financing in the low-grade bond market; the more cautious attitude of commercial banks, both domestic and foreign; and the weakening in the market for asset sales.
Green, 1991, "The Investment Performance of Low-grade Bond Funds," Journal of Finance (March), 29-48.
The company has a modest exposure to common stock, and medium and low-grade bonds.
We have avoided investment in high-risk, low-grade bonds, and we've avoided the problems associated with commercial mortgages.
0% for 1997; and -- The company has a conservative investment portfolio, with low exposure to medium and low-grade bonds.

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