Shopping on line can be easy, simple and save you lots of money. It can also take a lot of your time, frustrate you, and result in unwanted purchases. Now the same can be said for regular high street shopping, but with the vast opportunity presented by the Internet it will pay you to spend a few minutes reading this and understanding how to better optimize your Junk Bonds shopping experience:
1. Compare - without doubt the biggest advantage that the Junk Bonds offers shoppers today is the ability to compare thousands of Junk Bonds at a time. This is a great thing, but not necessarily all the time! Too much can be daunting at times so take advantage of the great comparison sites and where possible let them do the hard work for you.
2. Research - if it has been said it will be on the internet. Ignorance is no longer a justifiable reason for buying the wrong thing. Take the time to research in detail everything that you could possible want to know about
3. Testimonials - don't know anybody that has bought a Junk Bonds? Wrong! If the Junk Bonds is good the internet will let you know. Use the Internet as a friend and get testimonials before you buy.
4. Questions - Got a question about Junk Bonds then search the Forums, FAQ's, Blogs etc. Don't be afraid to ask .....
5. Reputation - Never heard of the company selling Junk Bonds? Don't worry, no reason why you should know every company in the world, but you know someone that does! Use the internet to find out what people are saying about Junk Bonds and build up a picture of their reputation for sales, returns, customer service, delivery etc.
6. Returns - still worried that even after all of the above your Junk Bonds wont be what you want? Check out the returns policy. There is so much competition now that someone, somewhere is bound to offer the terms that you are comfortable with.
7. Feedback - happy with your Junk Bonds then let people know, after all you are depending on others people input in your buying decision, so why not give a little back.
8. Security - check for the yellow padlock on the Junk Bonds site before you buy, and the s after http:/ /i.e. https:// = a secure site
9. Contact - got a question about Junk Bonds, or want to leave a comment then check out the sites contact page. Reputable companies have them and respond.
10. Payment - ready to pay for your Junk Bonds, then use your credit card or PayPal! Be aware of companies that don't accept them, there may be genuine reasons but given the huge amount of choice you have when buying online there is no reason at all not to buy via credit card or PayPal.
In finance, a
high yield bond (
non-investment grade bond,
speculative grade bond or
junk bond) is a
Bond (finance) that is rated below
investment grade at the time of purchase. These bonds have a higher risk of
default (finance) or other adverse credit events, but typically pay higher yields than better quality bonds in order to make them attractive to investors.
Flows and levels
Global issuance of high yield bonds more than doubled in 2003 to nearly $146 billion in securities issued from less than $63 billion in 2002, although this is still less than the record of $150 billion in 1998. Issuance is disproportionately centered in the
United States of America, although issuers in Europe, Asia and South Africa have recently turned to high yield debt in connection with refinancings and acquisitions. In 2006, European companies issued over €31 billion of high yield bonds.Bryant Edwards et al,|High Yield In France] (Latham & Watkins LLP 2006)
Risk
The holder of any debt is subject to interest rate risk and credit risk. Interest rate risk refers to the risk of the market value of a bond changing in value due to changes in the structure or level of interest rates or credit spreads. The credit risk of a high yield bond refers to the probability and probable loss upon a credit event (i.e., the obligor defaults on scheduled payments, files for bankruptcy, or the bond is restructured.)
A
credit rating agency attempts to describe the risk with a
credit rating such as AAA. In the
North America, the five major agencies are Standard and Poor's, Moody's, Fitch Ratings, Dominion Bond Rating Service and A.M Best. Bonds in other countries may be rated by US rating agencies or by local credit rating agencies. Rating scales vary; the most popular scale uses (in order of increasing risk) ratings of AAA, AA, A, BBB, BB, B, CCC, CC, C, with the additional rating D for debt already in arrears.
Government bonds and bonds issued by
government sponsored enterprises (GSE's) are often considered to be in a zero-risk category above AAA; and categories like AA and A may sometimes be split into finer subdivisions like "AA-" or "AA+".
Bonds rated BBB- and higher are called
investment grade bonds. Bonds rated lower than investment grade on their date of issue are called
speculative grade bonds, derisively referred to as Junk bonds.
The lower-rated debt typically offers a higher yield, making speculative bonds attractive investment vehicles for certain types of
financial portfolios and strategies. Many pension funds and other investors (banks, insurance companies), however, are prohibited in their by-laws from investing in bonds which have ratings below a particular level. As a result, the lower-rated securities have a different investor base/clientele than investment grade bonds.
The value of speculative bonds is affected to a higher degree than investment grade bonds by the possibility of default (finance). For example, in a recession interest rates may drop, and the drop in interest rates tends to increase the value of investment grade bonds; however, a recession tends to increase the possibility of default in speculative grade bonds.
Usage
The original speculative grade bonds were bonds that once had been investment grade at time of issue, but where the credit rating of the issuer had slipped and the possibility of default increased significantly. These bonds are called
"Fallen Angels".
The investment banker,
Michael Milken, realised that fallen angels had regularly been valued less than what they were worth. His time with speculative grade bonds started with his investment in these. Only later did he and other investment bankers at Drexel Burnham Lambert, followed by those of competing firms, begin organising the issue of bonds that were speculative grade from the start. Speculative grade bonds thus became ubiquitous in the 1980s as a financing mechanism in mergers and acquisitions. In a
leveraged buyout (LBO) an acquirer would issue speculative grade bonds to help pay for an acquisition and then use the target's cash flow to help pay the debt over time.
In 2005, over 80% of the principal amount of high yield debt issued by U.S. companies went toward corporate purposes rather than acquisitions or buyouts.
High-yield bonds can also be repackaged into
collateralized debt obligations (CDO), thereby raising the credit rating of the senior
Tranche above the rating of the original debt. The senior tranches of high-yield CDOs can thus meet the minimum credit rating requirements of pension funds and other institutional investors despite the significant risk in the original high-yield debt.
High-yield bond indices
High-yield bond market index exist for dedicated investors in the market. Indices for the broad high yield market include the CSFB High Yield II Index (CSHY), the
Merrill Lynch High Yield Master II, and the Bear Stearns High Yield Index (BSIX). Some investors, preferring to dedicate themselves to higher-rated and less-risky investments, use an index that only includes BB-rated and B-rated securities, such at the Merrill Lynch BB/B Index. Other investors focus on the lowest quality debt rated CCC or
Distressed securities, commonly defined as those yielding 1000 basis points over equivalent government bonds.
Citations
See also
External links
- High Yield Blog
- Thomson - Financial - League Tables
- Junk bond
- 4Q03 Global Capital Markets Press
In finance, a
high yield bond (
non-investment grade bond,
speculative grade bond or
junk bond) is a
Bond (finance) that is rated below investment grade at the time of purchase. These bonds have a higher risk of default (finance) or other adverse
credit events, but typically pay higher yields than better quality bonds in order to make them attractive to investors.
Flows and levels
Global issuance of high yield bonds more than doubled in 2003 to nearly $146 billion in securities issued from less than $63 billion in 2002, although this is still less than the record of $150 billion in 1998. Issuance is disproportionately centered in the
United States of America, although issuers in Europe, Asia and South Africa have recently turned to high yield debt in connection with refinancings and acquisitions. In 2006, European companies issued over €31 billion of high yield bonds.Bryant Edwards et al,|High Yield In France] (Latham & Watkins LLP 2006)
Risk
The holder of any debt is subject to
interest rate risk and credit risk. Interest rate risk refers to the risk of the market value of a bond changing in value due to changes in the structure or level of interest rates or credit spreads. The credit risk of a high yield bond refers to the probability and probable loss upon a credit event (i.e., the obligor defaults on scheduled payments, files for bankruptcy, or the bond is restructured.)
A credit rating agency attempts to describe the risk with a
credit rating such as AAA. In the
North America, the five major agencies are Standard and Poor's, Moody's, Fitch Ratings, Dominion Bond Rating Service and
A.M Best. Bonds in other countries may be rated by US rating agencies or by local credit rating agencies. Rating scales vary; the most popular scale uses (in order of increasing risk) ratings of AAA, AA, A, BBB, BB, B, CCC, CC, C, with the additional rating D for debt already in arrears. Government bonds and bonds issued by
government sponsored enterprises (GSE's) are often considered to be in a zero-risk category above AAA; and categories like AA and A may sometimes be split into finer subdivisions like "AA-" or "AA+".
Bonds rated BBB- and higher are called
investment grade bonds. Bonds rated lower than investment grade on their date of issue are called
speculative grade bonds, derisively referred to as
Junk bonds.
The lower-rated debt typically offers a higher yield, making speculative bonds attractive investment vehicles for certain types of financial portfolios and strategies. Many pension funds and other investors (banks, insurance companies), however, are prohibited in their
by-laws from investing in bonds which have ratings below a particular level. As a result, the lower-rated securities have a different investor base/clientele than investment grade bonds.
The value of speculative bonds is affected to a higher degree than investment grade bonds by the possibility of
default (finance). For example, in a recession interest rates may drop, and the drop in interest rates tends to increase the value of investment grade bonds; however, a recession tends to increase the possibility of default in speculative grade bonds.
Usage
The original speculative grade bonds were bonds that once had been investment grade at time of issue, but where the credit rating of the issuer had slipped and the possibility of default increased significantly. These bonds are called
"Fallen Angels".
The investment banker, Michael Milken, realised that fallen angels had regularly been valued less than what they were worth. His time with speculative grade bonds started with his investment in these. Only later did he and other investment bankers at
Drexel Burnham Lambert, followed by those of competing firms, begin organising the issue of bonds that were speculative grade from the start. Speculative grade bonds thus became ubiquitous in the
1980s as a financing mechanism in
mergers and acquisitions. In a
leveraged buyout (LBO) an acquirer would issue speculative grade bonds to help pay for an acquisition and then use the target's cash flow to help pay the debt over time.
In 2005, over 80% of the principal amount of high yield debt issued by U.S. companies went toward corporate purposes rather than acquisitions or buyouts.
High-yield bonds can also be repackaged into
collateralized debt obligations (CDO), thereby raising the
credit rating of the senior Tranche above the rating of the original debt. The senior tranches of high-yield CDOs can thus meet the minimum credit rating requirements of pension funds and other institutional investors despite the significant risk in the original high-yield debt.
High-yield bond indices
High-yield
bond market index exist for dedicated investors in the market. Indices for the broad high yield market include the
CSFB High Yield II Index (CSHY), the Merrill Lynch High Yield Master II, and the Bear Stearns High Yield Index (BSIX). Some investors, preferring to dedicate themselves to higher-rated and less-risky investments, use an index that only includes BB-rated and B-rated securities, such at the
Merrill Lynch BB/B Index. Other investors focus on the lowest quality debt rated CCC or
Distressed securities, commonly defined as those yielding 1000 basis points over equivalent government bonds.
Citations
See also
External links
- High Yield Blog
- Thomson - Financial - League Tables
- Junk bond
- 4Q03 Global Capital Markets Press
