Bonds are debt securities issued by organizations such as the U.S. Treasury, states, counties and cities or public and private corporations that are used to raise capital for various purposes. When a bond is purchased, the investor becomes a lender to the issuing organization. In return for the loan, the issuer agrees to pay interest, along with the repayment of your initial investment at the time of maturity.
High yield bonds are typically bonds issued by U.S. corporations that do not qualify for “investment-grade” ratings by one of the leading credit rating agencies. An issuer with a greater risk of default – not paying interest or principal in a timely manner – are considered to be below investment grade and must pay a higher interest rate in order to attract investors to buy their bonds and to compensate investors for the added risk associated with this type of investment. High yield bond are typically issued with shorter maturities and are likely callable so that if a company’s financial condition improves, it can take advantage of lower rates.
Your Ziegler financial advisor can help you determine if high yield bonds are appropriate investments for your portfolio and access inventory through our fixed income trading desk.