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.
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.
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
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.
In discussing his study of low-grade and high-grade bond performance, Regan (1990) reports that the low-grade bond portfolio performed consistently well except during a recession, that junk bonds displayed the same seasonal pattern as second-tier stocks, including the "January effect;" that both low-grade stocks and low-grade bonds reflect the riskiness of the individual firm rather than changes in the general market, that the yield spread was not useful in timing business cycles, and that junk bonds behaved more like equities than like Treasury bonds.
Cornell and Green (1991) rely on the returns for low-grade bond funds to estimate the risks and returns for these bonds.
Green, 1991, "The Investment Performance of Low-grade Bond Funds," Journal of Finance (March), 29-48.
0% for 1997; and -- The company has a conservative investment portfolio, with low exposure to medium and low-grade bonds.
The company has a modest exposure to medium and low-grade bonds.

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