Oct
9
What’s the Risk?
Posted by: Peyman Gazor | October 9, 2010 | Leave a Comment
In this economy, investors are resorting to risky activities hoping that the returns will be more than satisfactory. The risky “moneymakers” are none other than high-yield bonds. Even the more conservative investors are buying into this “new big thing in bond investing”. The returns generated from these bonds are definitely attractive running into 6 or 7 per cent; however, high-yield bonds have a much higher risk of default in comparison to bonds issued by blue-chip companies or governments. Most of these high-yield bonds are being issued by companies with lower-tier credit ratings. This sudden increase in high-yield bond activity is not all a surprise. In fact these bonds are rebounding from the lows they experienced in 2008, with some big players losing as much as 40 per cent in their funds.
In the end, the stock market is all about risks. However, some of the risks (as they appear to be to the inexperienced investor) involved in financial markets can only be barriers to further rewards. Depending on the investor and his/her knowledge of markets, these barriers can be exposed and therefore the risks can also be dismissed. As long as the largest econmy in the world, the United States of America, does not experience a double-dip recession, markets all around the world will begin to see steady growth in all areas including their high-yeild bonds.