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The entities issuing these bonds are generally trustworthy when it comes to paying back investors. High-yield bonds ... rating agencies grade the creditworthiness of companies that issue bonds.
When a bond issue is underwritten, one or more securities firms or banks, forming a syndicate, buy the entire issue of bonds from the issuer and resell them to investors. The security firm takes the risk of being unable to sell on the issue to end investors.
Bonds are an agreement between an investor and the bond issuer – a company, government, or government agency – to pay the investor a certain amount of interest over a specified time frame.
The SPE issues bonds to investors in exchange for cash, which are used to purchase the portfolio of underlying assets. Like other ABS private label securities, the bonds are not uniform but issued in layers called tranches, each with different risk characteristics.
Bonds are commonly issued by governments and businesses to fund their operations or special projects. Investors like bonds for their income-generating potential and lower volatility compared to ...
Individual investors participate in the high-yield sector mainly through mutual funds. [5] Some institutional investors have by-laws that prohibit investing in bonds which have ratings below a particular level. As a result, the lower-rated securities may have a different institutional investor base than investment-grade bonds. [citation needed].
Investors will also prefer to purchase newly issued bonds with high interest rates and will sell their old, lower coupon rate bonds. The situation is reversed if interest rates start to fall.
A municipal bond, commonly known as a muni, is a bond issued by state or local governments, or entities they create such as authorities and special districts. In the United States, interest income received by holders of municipal bonds is often, but not always, exempt from federal and state income taxation.