Why are the interest rates on high-yield bonds greater than those on other types of bonds?

Personal Finance February 24, 2013 Print Friendly and PDF

High-yield bonds (also known as junk bonds) are those that receive low ratings from bond-rating services such as Moody's and Standard and Poor's. Bond ratings reflect the perceived risk of a bond issuer's default.

Low ratings indicate concern about the ability of a bond issuer to repay its debt. Therefore, given this risk, companies with low bond ratings must pay above-average yields to entice investors to buy their debt securities.

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