Junk Bonds - Misnamed?
Junk bonds - more politely known as high-yield bonds - acquired the name as a consequence of their low rating by the major agencies and their high rate of default. ‘Default’ is the failure to repay principal and/or suspension of interest payments.
But a […]
Part II — EVALUATING BENEFITS
In Part I, we examined some of the risks associated with bond investing. Here we’ll look more quantitatively at evaluating the potential rewards.
Because of some fixed characteristics - par (face value, repaid at maturity), coupon (interest rate, percentage paid in semi-annual payments on the par) and maturity (date principal is repaid) - predicting bond values and risk with some confidence is as much science as art.
Nowhere else in the investing world can the interested investor get more helpful information than that available from the various bond rating agencies
Life is risky. Every day investors are faced with complex choices in the face of deep uncertainty. What to do? Look at history and realize that the odds favor the educated. One opportunity for learning comes in the form of corporate bond offers.
One reason stocks are more popular than bonds is that the latter are more complicated. Ironic, considering their risk and returns bonds are easier to judge and predict with confidence.
