High Yield
Categories: Tax, Bonds, Company Valuation
High yield bonds pay high interest—usually because they have to. These bonds are considered risky because the company linked to them isn't doing so great. They might be in huge debt or have a history of not paying up.
To attract any investors, they have to offer a better interest rate. Sometimes called "junk" bonds, high yield bonds might seem like a good deal—look at those high interest rates!—but remember that if you buy the bond and the company goes under, you lose all your cash and get nothin'.
Not such a great deal, then, eh?
Example
In a prevailing interest rate world where T-Bills are yielding around 3%, grade B bonds might yield 5% and "junk" or high yield bonds might yield 8% and much, much more... and often carry ratings of CCC or worse.