The hidden risks of junk bonds

Junk bonds have been one of the biggest beneficiaries of record-low interest rates over the past five years. Also known as high-yield, speculative-grade and sub-investment-grade, these bonds carry a rating lower than ‘BBB’ from a credit-rating agency such as Moody’s or Standard & Poor’s. They offer higher yields than safer investment-grade bonds, but come with a significantly higher risk of default.

As result, they have traditionally been a specialist area of the bond market. But the low yields available on other income investments have encouraged many investors to venture into this area for the first time.

The question [...]

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