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.
By using stochastic dominance approach, this paper finds that small stock returns dominate low-grade bond returns over the study period from 1926 to 1997.
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
Using different definitions of high- and low-grade bonds, Weinstein (1986/87) compares their respective returns over the period from June 1962 to July 1974.
Liquidity and the Pricing of Low-Grade Bonds. Financial Analysts Journal, 48(January/February): 63-67, 74.
Green, 1991, "The Investment Performance of Low-grade Bond Funds," Journal of Finance (March), 29-48.
Keim, 1991, "The Risk and Return of Low-Grade Bonds: An Update," Financial Analysts Journal (September/October), 85-89.
Returns on small-firm stocks and low-grade bonds are more highly correlated in January than in the rest of the year.
Return and volatility of low-grade bonds, 1977-1989.
Keim, "Realized Returns and Defaults on Low-Grade Bonds 1977-1989," Journal of Finance (March 1991), pp.

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