If you have ever wondered how to squeeze extra income from fixed-income investments, high yield bonds are often the answer investors reach for first.
They offer dramatically higher interest payments than safer government or investment-grade corporate bonds, and understanding how they work is essential before committing capital to them, since the extra yield you earn comes with correspondingly greater risk.
A high yield bond is a debt security issued by a company with a lower credit rating that pays a significantly higher interest rate than government bonds or investment-grade corporate bonds to compensate investors for taking on more risk.
These bonds typically carry credit ratings below "BBB-" on the Standard and Poor's scale, placing them in the "speculative grade" or "junk bond" category.
While the label "junk" sounds alarming, it simply reflects the issuer's creditworthiness and does not mean the bond is worthless or destined to default.
