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High-Yield Bond |
Also found in: Dictionary/thesaurus, Encyclopedia, Wikipedia, Hutchinson | 0.01 sec. |
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High-yield bond See: Junk 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 informally called junk bonds. 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. High-Yield Bond What Does High-Yield Bond Mean? A bond that has a low credit rating and thus pays out a high rate of interest. Because they have a higher risk of default than investmentgrade bonds, high-yield bonds pay a higher yield. In the two main credit rating agencies, high-yield bonds carry a rating of BBB or lower from S&P and Baa or lower from Moody's. Bonds with ratings above these levels are considered investment-grade. Credit ratings can be as low as D (currently in default), and most bonds with C ratings or lower carry a high risk of default; to compensate for this risk, yields typically are very high. Also known as junk bonds. Investopedia explains High-Yield Bond The term “junk bonds” aside, high-yield bonds are widely held by investors worldwide, although most participate through the use of mutual funds or exchange-traded funds. The yield spread between investment-grade and high-yield bonds fluctuates over time, depending on the state of the economy, as well as company- and sector-specific events. Generally, investors in high-yield bonds can expect a yield that is at least 150 to 300 basis points higher than the yield on an investment-grade bond. Mutual funds provide a good way to gain exposure without the undue risk of investing in only one issuer's junk bonds. Related Terms: How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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Among Fidelity's target-date retirement funds, not one allocates much more than 10% to high-yield bonds. 1 billion of high-yield bond and bank debt, according to S&R That is greater than the dollar value of defaults in 2006 and 2007 combined, and it's more than 25 percent of the $157 billion of high-yield-loan and bond defaults in all of last year. Riskier high-yield bonds are known as non-investment grade or more colloquiallyas junk bonds, because it could be that your investment becomes worthless ifthe company issuing the bond goes under. |
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