What Are High Yield Bonds?

A bond that is issued by a company that is considered to be a higher credit risk, is know as a high yield bond, or junk bond as it is commonly referred to. The credit rating of a high yield bond is considered to be either speculative grade or below investment grade. What this means, is that the chance of default with high yield bonds is a lot higher than that of other bonds. The credit risk of high yield bonds is higher which means that the price is generally higher than other bonds of better credit quality. Thorough research has shown that portfolios of high yield bonds usually have higher returns than that of other bond portfolios, suggesting that the higher yields more than compensate for their additional added risk. These high yield bonds actually get their name from their characteristics. Credit ratings were developed for these bonds, which caused the credit rating agencies to create a grading system to reflect the relative credit quality of bond issuers. Bonds that of the highest quality are AAA then the credit scale moves down to C, and finally on down to D, or the default category. Bonds that are considered to have an acceptable risk of default are referred to as investment grade and encompass BBB bonds and higher. Those bonds that are BB grade and lower are called speculative grade and have a very high risk of default. Rule makers soon began using this demarcation to establish investment policies for financial institutions. Government regulation has also adopted these standards. Seeing as how most investors were restricted to investment grade bonds, speculative grade bonds soon developed negative connotations and were not widely held in investment type portfolios. Mainstream investors and investment dealers did not deal directly in these bonds. Because of this, these bonds became known as junk, or high yield bonds since few people would accept the risk of owning them. Prior to the 1980s, most junk bonds resulted for a decline in credit quality of former investment grade issuers. This was a result of the assumption of too much financial risk by the issuer. The advent of modern portfolio theory meant that financial researchers soon began to realize that the risk adjusted returns for portfolios of high yield bonds were quite high. What this meant is that the credit risk of these bonds was more than compensated for by their higher yields, suggesting that the actual credit losses were exceeded by the somewhat higher interest payments. High yield bond investment solely relies on credit analysis. Credit analysis is similar to equity analysis in the fact that it concentrates on issuer fundamentals. Due to the high minimum size of bond trades and the specialist knowledge in credit that is required, most investors are best advised to invest through high yield mutual funds.

High Yield Investment Programs

The entire high yield investment program scene is thought by many to be seriously over-hyped. This broad scene is full of somewhat extravagant and over-optimistic claims. While some of these are overwhelmingly ridiculous; others have a cleverly contrived ring of feasibility shining through them. You would be very lucky if 3% of the offers you will come across deliver anything even close to what they are promising you.

Some of these offers will probably even fall in a heap before they even get started. There are no guarantees to any of them. You should probably realize now that you are going to end up trashing about 20 times as many high yield investment program offers as you are going to actually seriously consider. Anything dealing with hi yield is risky, and you will discover that many offers you run into will fail to deliver what you're seeking.

The fact of the matter has always remained the same; any type of high yield or fast growth opportunity will always pose risks. If it was simple to acquire large profits in a short amount of time, everyone would be a millionaire. The main reason is that high yields and fast growth in any financial system will always be accompanied by high risk and consequent failure.

Out there in the commercial world, there are many opportunities to make high profits. A lot of these opportunities come with very high risks. Most of them also require a lot of capital in order to make them work. Anyone who sees a high yield investment program opportunity needs to cover all of their bases, by involving other people such as investors or shareholders.

Make no mistake about it; high yield investment program opportunity's can bring great profits. In the conventional stock market, there is room to question whether there is any safer or more controllable way; hence the growing popularity of this form of investment. When compared to other means of investment, this is a very popular and widely chosen method to help cash in on the benefits.

The bottom line with any high yield investment program is that you should always be prepared that risks are involved. No matter what type of risk it may be, it is always going to be there. You could double your money in no time at all, then turn around the following week and lose everything. Nothing is guaranteed to happen.

Anyone that is familiar with high yield investment program opportunities will tell you that you have the chance of making some big bucks. As long as you take the proper precaution and approach everything in the right fashion, you have a better chance. What you do with your investment, is entirely up to you.