Ensign Capital Management, Inc.
Timing is Everything
High Yield Bonds
|Investment Grade||Moody's||Standard & Poor's||Fitch Ratings|
|High Quality (Very Strong)||Aa||AA||AA|
|Upper Medium Grade (Strong)||A||A||A|
|Below Investment Grade|
|Lower Medium Grade (Somewhat Speculative)||Ba||BB||BB|
|Low Grade (Speculative)||B||B||B|
|Poor Quality (May Default)||Caa||CCC||CCC|
|No Interest Being Paid or Bankruptcy Petition Filed||C||D||C|
The market for high yield bonds has grown. In addition to being populated by bonds that were once investment grade, the market contains many bonds issued by emerging companies seeking capital.
High yield bonds have the potential for higher returns due to higher coupon rates and the potential for capital appreciation. This occurs when the underlying corporations improve their financial conditions. Capital appreciation can also occur as a result of interest rate changes in the overall markets.
High yield bonds have a corresponding higher risk due to a number of factors including a higher default risk, higher sensitivity to the business cycle, lower liquidity, and higher difficulty in getting information about speculative companies.