Article by Caterina Christakos

If you’re curious about what you can get from a high-yield index, it’s important to understand the two different elements that go into it. You’ve probably heard about the bond market index, and maybe you’ve heard about the high-yield bonds market. A high-yield index is essentially a bond market index that focuses upon high-yield bonds. Essentially, that’s all there is to it, but let’s go into a little more depth about what these things are.

What’s a bond market index?

Again, a high-yield index is a very specialized type of bond market index, and bond market indices are listings of bonds and similar market instruments. The listing usually takes into account the underlying financial processes of each bond and presents this information according to a series of standardized measurements.

On a broad level, the bonds that a market index reports upon may be corporate bonds, mortgage-backed securities, government bonds, high-yield bonds, or any number of other more esoteric types of instruments. In general, they will be classified according to things like credit rating, maturity, rate-of-return, yield, convexity, and duration, and they will be weighted in terms of market capitalizations.

Because of the complex nature of bonds, working with a bond market index can be slightly more advanced than working with a stock market index. That’s why beginning investors usually start with stock trading and later move on to the more advanced types of investment such as bonds and mutual funds.

What’s a high-yield bond?

If you know what a bond is, it’s not that hard to figure out what a high-yield bond is, although it does get quite complicated. Essentially, a high-yield bond is any type of bond that has been rated low and thus comes with a high degree of risk of default and other negative price crash events. Because of this high risk, which the buyer agrees to take on, these bonds typically come with much higher interest rates than standard types of bonds.

In the last decade, the sale of these bonds has exploded, perhaps reflecting the highly speculative style of investment that has been popular over the last few years and which likely contributed to the recent economic crisis. However, although this trading philosophy has played a large role in bringing us to this place, the problems come from the people who take it to unreasonable levels.

If you moderate your high-yield bond trading, you will not get into trouble. Of course, it should not be your primary investment strategy. That goes without saying. If anything, it should just be a small percentage of what you do. Many financial experts recommend your high-yield bond investments should make up no more than 10% of your overall portfolio.

And if you really want to be smart about it, it’s a good idea to use a high-yield index that is reputable and experienced in the business. Don’t just use any service you find on Google. Some of the better ones out there are from Merrill Lynch, Barclays, Bear Stearns, and CSFB. While none of these indices are foolproof, they tend to be better than the rest.

Financial Woman Founder Camille Gaines explains the mystery behind why high yield bonds pay more interest than other types of bonds in this Investing Basics Series. She gives some investment tips on ways to protect your money.
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Article by Shawn Manaher

When people think of investing in the stock market they often think of just that, stocks. But there is more to the market than simply buying individual issue stocks (these are actual shares of one single company). They can buy mutual funds, which are made up of shares of different companies, often safer since if one company fails, the whole mutual fund does not go under. They could invest in bonds, which although are traded on a different platform than the stocks, they are still considered investments but a little safer than stock. Or people could go for something even safer such as money markets or CDs.

To have a well-balanced portfolio it is important to own something in each category. While many investment advisors will agree that a younger person should not hold bonds but more equities. It is often profitable for those younger people to hold a portion of their portfolio in high yield bonds. These are bonds that are deemed a little riskier than the regular investment grade bonds. They are issued by companies that are struggling for cash so they offer bonds paying a better rate of return. Usually they come with such a risk that the company may go under and the investor is left holding a bond that is essentially worthless. The upside of the risk is if they do pay off, the provide a rate of return considerably better than what an investment grade bond will pay.

Now many people are intrigued by the prospect of making a great rate of return, but they are disheartened by the fact that they can lose money as well. They want something secure, and hopefully FDIC insured (FDIC insurance is the backing of the federal government, if the issuing company goes out of business or fails, the government will reimburse the owner). In this case people turn to high yield cds. CD, or certificates of deposit, offer a rate of return, from the bank, over a given period of years. The investor puts his money into a CD and cannot get it out, without penalty, for the duration of the investment. CDs are much safer in that their value will not go down.

Best High Yield Bets: Energy, Health Care Bonds

Article by James McIlroy

Fixed income instruments that are referred to as high-yield bonds or junk bonds are a well-defined subset of the bond market. The total value of outstanding bonds in the global market amounted to $ 95 trillion in 2010. These assets are similar to other bonds, in that they represent an investment in the debt of an entity. Investors lend money to entities that require additional capital, with the intent of earning money (interest) while the funds are on loan. At the maturity of the loan, the investor collects the invested amount (principal). Depending on the economic outlook, business environment and other unique circumstances; a company may face difficulties to pay the interest payments or the final repayment of the principal. This quality of the company is called its credit worthiness. The risk that it will fail to make one or more of these payments is called credit risk. Institutional investors keep fixed-income analysts employed to analyze the factors influencing the credit worthiness of a company. Individuals and smaller investment shops cannot afford to hire such specialized staff. Without insights to the credit risk of a company, investing in bonds would be very much like gambling. To raise more capital (or the same amount for less interest), issuers can increase the size of the investor pool (simple supply/demand dynamic). In order to address the handicap of smaller investors, they can hire credit rating agencies to rate their bonds. The three major credit rating agencies in the United States are Standard & Poor’s, Moody’s and Fitch Ratings. Upon conducting their analysis, the agencies assign a rating to the issued bonds. These ratings represent how likely it is that the issuer will default on its obligations to pay.

S&P Moodys Fitch Description
A_AA A_aa A_AA Investment Grade
AA+ Aa1 AA+
AA Aa2 AA
AA- Aa3 AA-
.
.
.
High yield / junk bonds
BB Ba2 BB
B+ B1 B+
B B B
.
.
.
D – Defaulted

The table above shows the equivalent ratings of the three agencies and the portion of the scale that defines high-yield bonds. Since junk bonds represent the bottom end of the scale, issuers whose debt is rated in this region have to pay a high price for the money they borrow in order to compensate the investors for the risk that they might not get all the payments initially set out in the prospectus. The return promised on a bond is also called yield. It is therefore now easy to see why high-yield bonds are called what they are.

Article by Jessica Thomson

The High-Yield Bond is a bond that is rated below investment grade at the time of purchase. These Bonds are known for having a higher risk of default. The High-Yield market has been around since 1970s. The correlation of different kind of bonds is normally very high but it is not so in case of High mpanies, which are financially vulnerable. But it is the quality of paying higher yields than quality bonds which makes them attractive to investors.

Investment in High Yield Bonds can be done either individually through a broker or in bulk through mutual funds. It is better to go for the mutual fund way as it helps in reducing the risk. There is significant evidence that High Yior in bulk through mutual funds. It is better to go for the mutual fund way as it helps in reducing the risk. There is significant evidence that High Yield Bonds have a very significant equity component that makes them a different asset class from investment-grade bonds.

Within the High-Yield bonds universe, BB bonds are heavily affected by market interest rates with some equity effect; B-rated Bonds have more equity like characteristics than an interest rate effect; and CC C-rated bonds have virtually no market interest rate effect.

The reason for investing in these bonds may be different for different investors but the main characteristics which attract investors are as follows

It helps in increasing one’s income as it may provide high current income due to its high interest rates.

The priority in legal terms that enjoy is the other factor which makes them attractive. It has the priority in terms getting paid before others in case of liquidation of the company. Shareholders, equity or preference, are to be paid only after meeting the obligations of Bondholders.

It has the potential for capital appreciation if the bond is upgraded by credit rating agencies due to improvement in company business.

The other factor is that these are less volatile than other investments like investing in shares.

Junk Bonds have historically been less sensitive to interest rate swings than Treasuries or high-grade corporate debt, the reason being their prices are more closely linked to the credit quality of individual issuers. Defaults are common in the high-yield bond arena and therefore call for diversification in the portfolio. With diversification in portfolio, default rates can be projected and averaged into returns.

One should buy Junk Bonds only for short-term gain. The bonds should preferably be purchased when the High yield market is depressed and sell them as soon as the market recovers.

So by carefully looking at market conditions and keeping other factors in mind, one may surely get high yield from High-Yield Bonds.eld Bonds have a very significant equity component that makes them a different asset class from investment-grade bonds.

Within the High-Yield bonds universe, BB bonds are heavily affected by market interest rates with some equity effect; B-rated Bonds have more equity like characteristics than an interest rate effect; and CC C-rated bonds have virtually no market interest rate effect.

The reason for investing in these bonds may be different for different investors but the main characteristics which attract investors are as follows

It helps in increasing one’s income as it may provide high current income due to its high interest rates.

The priority in legal terms that enjoy is the other factor which makes them attractive. It has the priority in terms getting paid before others in case of liquidation of the company. Shareholders, equity or preference, are to be paid only after meeting the obligations of Bondholders.

It has the potential for capital appreciation if the bond is upgraded by credit rating agencies due to improvement in company business.

The other factor is that these are less volatile than other investments like investing in shares.

Junk Bonds have historically been less sensitive to interest rate swings than Treasuries or high-grade corporate debt, the reason being their prices are more closely linked to the credit quality of individual issuers. Defaults are common in the high-yield bond arena and therefore call for diversification in the portfolio. With diversification in portfolio, default rates can be projected and averaged into returns.

One should buy Junk Bonds only for short-term gain. The bonds should preferably be purchased when the High yield market is depressed and sell them as soon as the market recovers.

So by carefully looking at market conditions and keeping other factors in mind, one may surely get high yield from High-Yield Bonds.

putnam.com — Putnam High Yield Advantage Fund Manager Paul Scanlon discusses the different advantages of high-yield bonds and bank loans.
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Forbes’ Heather Struck on persistent exuberance in high-yield debt. blogs.forbes.com www.forbes.com

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Hear Bryan Collins answer the following questions on the Asian High Yield Market, – What are the drivers for the Asian high yield market? – How do you see the default rate trend for the Asian bond market? – What are the causes of relative under performance by the Asian high yield market? – What is the outlook for the second half of 2011?
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(PRWEB) November 26, 2004

Corby Capital Markets, the fixed income broker dealer based in Boston, is addressing investor’s concerns about investing in bonds at prevailing rates. In their recent newsletter “The Bond Specialist”, Michael E. Shamosh, President of Compound Strategies tells bond investors sitting in cash that they are suffering from what he calls “Compound Fracture.”

At the beginning of this year there was virtually no one who liked the bond market. Watch the morning business news and a parade of “knowledgeable” guests would warn you off of the bond market. Step out in the street and ask a neighbor about interest rates and the reply would be “they are going up”. On your daily commute there were more signs of the impending bond market debacle. “Refinance now before rates go up” could be seen on the billboards, buses and trains. Walk into the building in which you work and, you might think you hear “good day sir, rates are going up” from the security guard.

One thing about markets; they do not care what you think. Instead of higher rates the majority of bond market professionals, and not a few small investors, wound up with a case of “compound fracture”. Instead of using the power of compound interest, the way most bond money is made in this world, investors broke the chain of compounding by sitting in cash and money funds at rates below the rate of inflation. Everybody waited for a day that has not come; at least not yet.

Compound fracture is a serious problem whether it be medical or monetary. A badly broken femur will stop you from getting where you want to go; a broken chain of compounding will do the same. Unless you are using the incoming cash from your portfolio for living expenses, it should be treated as a source of future money growth.

A quick illustration can show just how significant compounding is to bond market returns. Let’s say you purchased $ 100,000 worth of a twenty year bond at a yield to maturity of 5%. That means you expect your money to grow at 5% for twenty years which will turn your $ 100,000 investment into $ 268,506. The components of that final number are as follows:

Return of original investment

New York, NY (PRWEB) September 20, 2011

The S-Network Composite Closed-End Fund Index (TICKER: CEFX) will add eight new components in its quarterly rebalancing, effective 6:00 PM (EST) Friday, September 30, 2011. Two components will be deleted, changing the number of index constituents to 125.

The additions to CEFX are: Aberdeen Asia-Pacific Income Fund Inc. (TICKER: FAX US); Western Asset High Income Fund II Inc. (TICKER: HIX US); First Trust High Income Long/Short Fund (TICKER: FSD US); First Trust Senior Floating Rate Income Fund II (TICKER: FCT US); Cohen & Steers Select Preferred and Income Fund (TICKER: PSF US ); Credit Suisse High Yield Bond Fund (TICKER: DHY US); Nuveen Senior Income Fund (TICKER: NSL US); and Nuveen Build America Bond Opportunity Fund (TICKER: NBD US).

The deletions are: PIMCO Income Opportunity Fund (TICKER: PKO US) and Blackstone/GSO Senior Floating Rate Term Fund (TICKER: BSL US).

A complete list of constituents and weights will be posted on the S-Network Composite Closed-End Fund Index website (http://www.closedendfundindex.com/indexdata-form.php) as of the effective date.

In addition to these constituent changes, index values for CEFXTR will be restated on the index web site and with all relevant data vendors. No changes will be made to the historic values for the price index (CEFX). The change was required because of a shift in methodology for the CEFXTR. Previously, dividends were added to the total return index at the close on the ex date. Under the new methodology, dividends will be added to the total return index at the open on the ex date.

The S-Network Composite Closed-End Fund Index is a fund index designed to serve as a benchmark for closed-end funds listed in the US that are principally engage in asset management processes seeking to produce taxable annual yield. The CEFX employs a modified net assets weighting methodology designed to assure accurate investment exposure across the various style segments that together comprise the taxable yield sector of the closed-end fund market.

Detailed information on the S-Network Composite Closed-End Fund Index is available at http://www.closedendfundindex.com. Data is also available through most vendors of financial data.

Index: S-Network Composite Closed-end Fund Index (USD) TICKER: CEFX

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Related High Yield Bonds Press Releases

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The European leveraged loan and high-yield bond markets picked up steam over the past month. Indeed, prices on loans and bonds hit recent highs, and volume – especially in high yield – soared. New this month: a chart detailing issuers whose debt advanced, vs. declining issuers. You can download the slides of the video at Slideshare.net. Connect with LCD Facebook: www.lcdcomps.com LinkedIn: www.lcdcomps.com Twitter: www.twitter.com Web: www.lcdcomps.com Download the slides www.slideshare.net
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The European syndicated loan market continued to tilt in favor of issuers in May and early June, as volume lagged inflows. In this analysis: Loan and high yield bond prices, leveraged finance volume, default rates, returns, as well as trends to look for in the coming months. Download the slides for this video (it’s free!) ow.ly Connect with LCD Facebook: www.lcdcomps.com Like LCD on Facebook for monthly analysis on LBO/Private equity stats, as well as Default/Restructuring analysis. LinkedIn: www.lcdcomps.com There’s almost 6000 market contacts in LCD’s Leveraged Loan Group Twitter: www.twitter.com News, commentary, other leveraged finance info Web: www.lcdcomps.com Contact anna_cini@sandp.com

It was advantage issuers in the European leveraged finance market in February and early March. Reverse-flexes and repricings emerged, while cash continued to pour into investor coffers. In this analysis: syndicated loan and high yield bond prices, loan returns, volume, default rates, plus trends to watch for in the months ahead. Connect with LCD Facebook: www.lcdcomps.com LinkedIn: www.lcdcomps.com Twitter: www.twitter.com Web: www.lcdcomps.com

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