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Yet companies with junk bonds are not simply defaulting left and right, and higher-rated junk bonds can perform well for investors when part of a diversified bond portfolio.
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.
High-yield bonds can offer a way for investors to earn higher returns if they’re comfortable taking on additional credit risk. Mutual funds and ETFs are some of the easiest ways to get exposure ...
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 ...
Bonds that are not rated as investment-grade bonds are known as high yield bonds or more derisively as junk bonds. The risks associated with investment-grade bonds (or investment-grade corporate debt ) are considered significantly higher than those associated with first-class government bonds.
Looking at rated bonds for 1973–89, the authors found a AAA-rated bond paid 43 "basis points" (or 43/100 of a percentage point) over a US Treasury bond (so that it would yield 3.43% if the Treasury yielded 3.00%). A CCC-rated "junk" (or speculative) bond, on the other hand, paid over 7% (724 basis points) more than a Treasury bond on average ...