high yield investmentsHigh yield investments are typically investments into so called "junk" bonds, that have a low credit quality rating and high expected bond yield. The specific level of low credit rating is that the bonds in question are rated below "investment grade" by the biggest credit rating agencies, such as Fitch, Moody's and Standard's and Poors. The high yield from these bonds reflects the very real risk that these bonds may go into default as the companies that have issued them may not be able to pay interest on them at all and may go bankrupt as a result. High Yield Investments - RisksHigh yield bonds are subject to several types of risks, including interest rate and credit risk. When considering the amount of risk in investing in junk bonds, you should consider risk adjusted return. In many cases, the rate of return on a portfolio of junk bonds is very comparable to risk adjusted return on investment grade bonds. Due to the fact that some junk bond issuers do go into default, a greater proportion of their expected return comes from interest payments rather than principal, in comparison to investment grade bonds. As a result, junk bonds are typically less sensitive to interest rate changes, allowing high-risk companies to more easily refinance its debt even if interest rates have increased. |