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In finance, a high-yield bond (non-investment-grade bond, speculative-grade bond, or junk bond) is a bond that is rated below investment grade by credit rating agencies. These bonds have a higher risk of default or other adverse credit events but offer higher yields than investment-grade bonds to compensate for the increased risk.
Junk bonds are a high-risk investment, but they offer the potential for higher returns than investment-grade bonds. Junk bonds, also known as high-yield bonds, are best suited for investors who ...
The current yield refers only to the yield of the bond at the current moment. It does not reflect the total return over the life of the bond, or the factors affecting total return, such as: the length of time over which the bond produces cash flows for the investor (the maturity date of the bond),
Current Yield – But now consider how yield changes if the price of that same bond falls. If the bond mentioned above is resold for $800 it results in a current yield of 6.25%.
High-yield bonds. Sometimes referred to as junk bonds, high-yield bonds offer higher interest rates to investors because they are considered greater credit risks than investment-grade bonds. High ...
For example, if a risk-free 10-year Treasury note is currently yielding 5% while junk bonds with the same duration are averaging 7%, then the spread between Treasuries and junk bonds is 2%. If that spread widens to 4% (increasing the junk bond yield to 9%), then the market is forecasting a greater risk of default, probably because of weaker ...
High-yield bonds: High-yield bonds are also referred to as “junk bonds,” and they are viewed as more risky, though not necessarily very high risk, depending on exactly the grade and financial ...
Funds may be rated from high to low credit quality. The quality of a fund is the average of the bonds owned by the fund. Funds that pay higher yields typically own lower quality bonds. Like stocks, the price of high-yield bonds is subject to fashion. [3] [4] For example, in late 2008, many high-yield bond funds were priced at 70 cents on the ...