|
High yield securities are corporate bonds that have credit ratings below Moody's Baa3 and Standard & Poor's BBB-. These high-yield bonds, sometimes called "junk bonds," are typically issued by emerging mid-cap corporations to finance growth. Maturities usually range from seven to 10 years, and interest is paid semi-annually.
High interest income is the most attractive aspect of high yield bonds. The coupon is typically 2%-5% (200–500 basis points) higher than on a like-maturity investment-grade corporate bond. Additionally, if you are an aggressive investor, high yield bonds provide an alternative vehicle to stocks with which you can potentially capitalize on emerging growth industries. As a trade-off for the potentially higher earnings, of course, high yield bonds are subject to greater risk of loss of principal and interest, including default risk, than higher-rated bonds.
|
Printer Friendly Version