High-yield bonds are loans that companies can take out with a lower credit rating. They pay higher interest rates because they are riskier than regular loans. These bonds are a way for companies to get money without selling part of their company. However, investing in high-yield bonds is also risky because the companies that issue them might be unable to pay back the money.
For instance, some companies in the U.S. are having a hard time borrowing money because investors are worried that the economy might get worse and these companies might not be able to pay back the money they borrow. Companies that are considered less risky are able to borrow money at a lower interest rate, while companies that are considered riskier need to pay more interest to convince investors to lend them money. Because of this, fewer risky loans have been given out, which has kept prices from going down too much.
The high-yield bond market, also known as the junk bond market, is a part of the bond market made up of lower-rated bonds generally rated below investment grade by credit rating agencies such as Moody's, S&P, or Fitch. To compensate for the additional risk, these bonds offer higher returns than investment-grade bonds. Over the years, the high-yield bond market has risen as more enterprises turn to it for funding. This is because businesses that have been unable to get investment-grade ratings usually need a strong credit history, expected cash flows, and a track record of loan repayment.
The COVID-19 pandemic caused a lot of uncertainty and fear in the financial market. Many people who had invested in high-yield bonds started selling them. This caused the prices of these bonds to drop a lot, and it became harder for people to buy or sell them. To compensate for the increased risk, people started demanding higher returns on these bonds, making them more expensive to buy. According to a report by the BANCODE ESPANA, during the pandemic, the issuance of high-yield bonds in Europe was 14.7% lower than previous years, with the exception of two large bond issuances that took place at the end of June 2020.
Financing Capital Expenditures
Middle East & Africa
J.P. Morgan Asset Management
NEED A CUSTOM REPORT?
We can customize every report - free of charge - including purchasing stand-alone sections or country-level reports, as well as offer affordable discounts for start-ups & universities. Contact us now
"The quality of research they have done for us has been excellent."