HIGH YIELD BOND Meaning and
Definition
-
A high yield bond, also known as a junk bond, refers to a type of fixed income investment instrument that offers relatively higher interest rates or yields but carries a higher risk of default compared to investment-grade bonds. Typically issued by companies with below-average credit ratings, high yield bonds provide investors with an opportunity to earn greater returns in exchange for taking on a greater risk.
High yield bonds are classified as such due to their non-investment-grade credit rating, which is typically assigned by credit rating agencies such as Standard & Poor's or Moody's. These bonds are usually issued by companies that face financial difficulties, have lower creditworthiness, or operate in industries with unstable cash flows. As a result, high yield bonds are considered riskier investments compared to those issued by financially stable and reputable entities.
Investors in high yield bonds accept the increased risk of default, meaning there is a higher likelihood that the issuer may be unable to honor interest payments or repay the principal amount at maturity. The higher interest rates offered by these bonds aim to compensate investors for this elevated risk. However, despite the higher default risk, high yield bonds can attract investors seeking potentially higher yields or diversification within their portfolios.
Investing in high yield bonds requires careful consideration of the issuer's financial health, industry conditions, and overall market conditions. It is essential to perform thorough due diligence and assess the risk-reward profile before incorporating high yield bonds into an investment strategy.
Common Misspellings for HIGH YIELD BOND
- high-yield bons
- high-yield bonds
- hiigh-yield bond
- highyieldbond
- highyield bonds
- hygh yield bonds
Infographic
Add the infographic to your website:
