The hidden risks of junk bonds

The higher yields on 'junk' bonds may be tempting, but are they worth the extra risk? Cris Sholto Heaton investigates.

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.

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Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.