What Is High Yield?

High yield bonds (also known as junk bonds) burst into fashion in the 1980s, with Drexel Burnham Lambert and Michael Milken being the earliest pioneers. A high yield bond usually has a very high interest rate (typically 3% or more) but is rated as being below investment grade, i.e. very risky. The idea behind this is that by buying enough different high yield bonds, the few which default and do not pay off will be more than outweighed by those which do, and investors can achieve high returns with a relatively low rate of risk.

To learn more about this concept and become a master at bonds and fixed income, you should check out our Bond Course - Fixed Income (coming soon!).

 

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