High Yield Bond
High-yield bonds are forms of bonds that derive higher interest rates with lower credit ratings than investment-grade bonds. More likely to default, high-yield bonds must pay a higher yield than investment-grade bonds to compensate investors. Also called as junk bonds, some high-yield bonds are fallen angels that lost their good credit ratings. High-yield bonds offer investors higher interest rates and potentially higher long-run returns than investment-grade bonds, but are far riskier.
- High yield tends to outperform when expectations are for a strong/growing economy (all boats rise)
- High yield tends to underperform safe fixed income investments when expectations are for a weaker economy