HIGHYIELD BOND Meaning and
Definition
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A high-yield bond is a financial instrument that refers to a type of corporate bond with a lower credit rating compared to investment-grade bonds. It is commonly known as a "junk bond." The term "high-yield" stems from the fact that these bonds offer a significantly higher yield or interest rate to compensate for their higher inherent risk.
High-yield bonds are typically issued by companies with below-average creditworthiness or speculative-grade credit ratings. Due to this increased risk, investors demand a higher rate of return on their investment. These bonds are known for their higher default risk compared to safer investments, such as government bonds or investment-grade corporate bonds.
The proceeds from issuing high-yield bonds are generally used for financing mergers and acquisitions, expansion projects, or for refinancing existing debt. Investors who purchase high-yield bonds are attracted to the potentially higher returns they offer, as they provide an opportunity for increased income in a low-interest-rate environment.
Investing in high-yield bonds requires careful assessment of credit risks. Buyers often analyze factors such as the issuing company's financial health, capital structure, industry conditions, and future prospects. High-yield bond prices are subject to fluctuations based on changes in interest rates and market perceptions of the bond issuer's credit quality.
Overall, high-yield bonds provide investors with an avenue to achieve higher yields but entail greater risk due to their lower credit ratings and higher chances of default.
Common Misspellings for HIGHYIELD BOND
- gighyield bond
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- hiyhyield bond
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- higgyield bond
- higbyield bond
Etymology of HIGHYIELD BOND
The term "high-yield bond" is typically used to refer to a type of bond that has a higher risk of default but also offers a higher potential return, often referred to as "junk bonds".
The etymology of the word "high-yield" can be broken down as follows:
- "High" is derived from the Old English word "heah", which means "tall" or "lofty". Over time, "high" evolved to include the meaning of "great", "exalted", or "superior". In the context of finance, it is used to denote something that has a large or significant value, return, or potential.
- "Yield" originates from the Middle English word "yelden" or "gilden", which means "to pay" or "to render". This term often relates to the return on an investment, indicating the income earned from an investment relative to its cost.
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