By definition a high-yield bonds is a high paying bond with a lower credit rating than investment-grade corporate bonds. It also has a lower credit rating than Treasury bonds and municipal bonds. The upside of this is that because of the higher risk of default, these bonds pay a higher yield than investment grade bonds.
Based on the two main credit rating agencies, high-yield bonds carry a rating of ‘BBB’ or lower from S&P, and ‘Baa’ or lower from Moody’s. Bonds with ratings above these levels are considered investment grade. Credit ratings can be as low as ‘D’ (currently in default), and most bonds with ‘C’ ratings or lower carry a high risk of default; to compensate for this risk, yields will typically be very high.
There are many misconceptions in investing; whether in stocks or bonds or in building an investment portfolio in general. Carl Richards at Behavior Gap has an interesting article in getrichslowly.org
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I Bonds are a low-risk, liquid savings product. While you own them they earn interest and protect you from inflation. You may purchase I Bonds at www.TreasuryDirect.gov and at most local financial institutions.
Additional Inflation Bond Facts:
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Here is a basic checklist to see if it will be to your advantage to invest in bonds.
Yes, if you have at least $100,000 to invest. It takes bonds from at least 10 issuers to create a diversified portfolio. However, to get decent pricing, you’ll need to buy them in blocks of 10 or more. Since bonds are typically issued in $1,000 increments, that means you’ll need at least $100,000 just for the fixed-income portion of your portfolio. Anything less and you’re better off sticking with a fund.
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Build America Bonds are part of the federal stimulus plan and provide a 35% rebate on interest costs to issuers or a tax credit to investors, at the issuer’s discretion. What this means is, because of the 35% federal government return, it turns into a lower borrowing rate despite of the fact that it draws a higher taxable financing cost to the issuer.
While a BAB could draw a higher taxable financing cost to the issuer than a tax-exempt bond, the 35% federal government giveback turns it into a lower borrowing rate.
When issued in large amounts and structured differently than the typical municipal bond, these securities could attract nontraditional muni investors, such as pension funds and foreign governments. BAB bonds are giving investors the opportunity to diversify risk into an asset class which historically is very stable.
Bonds to fund municipal projects normally are sold in the tax-exempt arena. With the advent of the Build America Bonds, or BABs, the $2.7 trillion market for tax-free debt is expected to see less volume in the months ahead. That has boosted this market also, with prices of the highly rated, long-term muni bonds advancing almost 0.3 percentage point.
What are Premium Bonds?
Premium Bonds are an investment where, instead of interest payments, investors have the chance to win tax-free prizes. When someone invests in Premium Bonds they are allocated a series of numbers, one for each £1 invested. The minimum purchase is £100 (or £50 when you buy by monthly standing order), which provides 100 Bond numbers and, therefore, 100 chances of winning a prize. You can hold up to £30,000.
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Government bond prices fell, although they climbed slightly off early session lows as the stock market stumbled amid investor anxiety about the timeline of the stimulus bill.
The benchmark 10-year note edged down 16/32 to 105-31/32 and its yield rose to 3.04% from 2.99% late Friday, February 6.
The 30-year bond fell 23/32 to 113-19/32 and its yield rose to 3.75% from 3.69% Friday. The last time bond ended the day with a yield above 3.70% was Nov. 24. when it finished at 3.78%.
The 2-year note dipped 3/32 to 99-22/32 and its yield rose to 1.05% from 0.99% late Friday.
The yield on the 3-month note rallied to 0.29% from 0.28% Friday. The 3-month is a short-term gauge of confidence in the marketplace, because investors shuffle funds in and out of the bill as they assess risk in other places.