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.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

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References in periodicals archive

Even more cautious investors might consider SPDR BarCap ST High Yield Bond ETF (SJNK), which invests in high-yield bonds that mature in three years or so.

Junk bonds reappearing in US markets

The bottom line is that the daily returns of high-yield bond issues and their firms' stocks have a statistically significant positive long-term correlation, but one that tends to be weak.

What Does Nasdaq's High-Yield Bond Market Reveal About Bondholder-Stockholder Conflicts?

High-yield bond issuance in Europe, the Middle East and Africa (EMEA) outpaced that in the US for the last two years but increasing headwinds cause a more volatile environment for EMEA issuance in 2015, according to a new report from Moody's Investors Service, "EMEA High-Yield Market Mirrored North America's, but Paths Diverging."

Moody's: EMEA and North American high-yield markets diverge

Conventional thinking would say that high-yield bonds should have a difficult time during a recession; after all, they are issued by companies prone to defaulting at the bottom of the business cycle.

Higher Grounds

And if the economy tanks, it could cause worries about corporations and their ability to pay off their high-yield obligations, making high-yield bonds risky.

Find jewels in junk: high-yield bond funds are one way to beat the interest-rate trap. (Mutual Fund Focus)

Expanding on Bookstaber and Jacob's work, Ramaswami (1991) reports success with a portfolio hedging strategy "based on the proposition that a high-yield bond is a dynamic combination of equity and riskless bonds." Cornell and Green (1991) find that "movements in stock prices explain a larger fraction of the variance of low-grade bond returns than do movements in interest rates." Shane (1994) creates an index of 208 low-rated bonds and an index of the stocks of the issuers represented in the bond portfolio.

Do high-yield bonds have an equity component?

Unlike the public shareholders, management foregoes the cash and high-yield bond portion of the package and, instead, receives the $24 in value by receiving six stub shares at $4 each.

You can be your own white knight

Two high-yield bonds sales in February were only completed after the issuers tightened the covenants significantly, more evidence that the market has reached a turning point, according to the report "North American High-Yield Bond Covenants: Investors Push Back on Bond Covenants as High-Yield Market Tightens."

Moody's: High-yield bond investors are demanding better protection as market tightens

Summary: EMEA high-yield bond issuance reached $118 billion in 2014, on par with 2013 issuance.

Moody's: $118 billion of EMEA high-yield bond issuance in 2014

BANKING AND CREDIT NEWS-October 10, 2014--RBC Global Asset Management re-opens high-yield bond fund

RBC Global Asset Management re-opens high-yield bond fund