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[41] [42] [43] A debt default by energy companies would harm the regional banks of Texas and Oklahoma, potentially causing a chain reaction through the corporate bond market. [44] On 12 March, the spread on junk bonds over U.S. Treasuries increased to 7.42% in U.S. markets, the highest level since December 2015, indicating less willingness to ...
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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.
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 ...
Junk bonds may not trade as frequently as investment-grade bonds, meaning you might have a harder time selling your bonds immediately or without taking a more substantial discount on the market price.
There is a time dimension to the analysis of bond values. A 10-year bond at purchase becomes a 9-year bond a year later, and the year after it becomes an 8-year bond, etc. Each year the bond moves incrementally closer to maturity, resulting in lower volatility and shorter duration and demanding a lower interest rate when the yield curve is rising.
Bonds can be divided into a few major groups depending on the issuer: the U.S. Treasury, a corporation, a state or local government, a foreign government or a U.S. federal agency. U.S. Treasurys
The agency faced a similar complaint in the mid-2000s from Hannover Re, a German insurer that lost $175 million in market value when its bonds were lowered to "junk" status. [ 8 ] [ 41 ] [ 42 ] In 2005, unsolicited ratings were at the center of a subpoena by the New York Attorney General 's office under Eliot Spitzer , but again no charges were ...