Posted by: admin : Category: A high-yield bond is a debt instrument which is judged to carry a high risk of default and therefore attracts an interest rate premium from the bond issuer to compensate to the perceived higher risk. Bonds are issued by companies when they need to raise money. The creditworthiness of each company, and therefore any bonds issued by the company, are rated by a number of specialised agencies. The highest possible rating for a company is “AAA”. Investment grade rating is considered to be BBB- and above. Bonds rated below this are deemed to be high risk. To tempt investors into putting their money into such bonds, the issuer must offer a higher interest rate than is common on more highly rated bonds. For example, if an investor has invested $10,000 in national savings then he will get $1,0227.33 whereas with M&T Bank eMoney Market Account the same investor will get $10,304.16. This bonds are the most popular debt instruments available in the money market today.
High yield bonds are sometimes called junk bonds. Their use became particularly notorious in the 1980s when they were often issued by ad hoc groups to finance corporate takeovers. The groups often had no substantial assets of their own but promised to use the assets of the takeover target to repay the original investors. Some of those associated with the rise of junk bonds in the 1980s, such as the investment banker Michael Milliken, were later convicted of various financial offences and served time in prison.