High Yield Corporate Bond Funds Explained

Corporate bond funds have been growing in popularity. This form of investment utilizes bond investment methods to provide shareholders with a return on their investment. High yield corporate bond funds are one category of bond funds that many investors choose to pursue. Here are the basics of high yield corporate bond funds.

High Yield

The main thing to understand about these bonds is why they are high yield. Bonds are rated according to the credit risk that they present. If they have a good credit score, they are given a rating of "AAA". The scale goes all the way down to "D" for the companies that represent the highest risk. The companies with lower ratings have to pay higher rates of interest on their bonds to attract investors to buy their bonds. Otherwise, they would not be able to sell their bonds.

High Risk

Although these bonds come with a high yield, they also come with higher risk. When a company with a low rating sells bonds, they are considered a big risk for investors. They could go into default and you could potentially lose your investment. If they do not have enough assets to satisfy their debts, you could lose your investment. 

blog comments powered by Disqus
Scottrade