Yet, at least one segment of the more risky investment spectrum is doing quite well.
Junk bonds are debt issued by companies that earn poor marks from the rating companies.
Bonds Safe or Not
Bonds are usually thought of as safer investments than stocks and this is true for many forms of bonds.
Most municipal and corporate bonds are usually less risky than stocks and are used by investors to earn current income (and possibly some tax benefits).
Returns of “safe” bonds approach those for U.S. Treasury issued debt, which is the safest of all investments.
However, safety comes with a price and the price is usually a lower return.
Bonds issued by companies with a marginal credit rating must be issued with a high return to attract investors and compensate for the additional risk.
Why would investors take on extra risk with bonds – for the same reason they invest in risky stocks: a higher return.
High-risk bonds, known as junk bonds, can earn investors a much higher return than regular corporate bonds and much do better than ultra-safe U.S. Treasury issues.
Bond returns shift from day to day, but the higher risk bonds did well in the first three quarters of 2009.
However, they were a disaster in 2008 for the most part.
And there is the problem. If you can stand the risk and volatility and understand the junk bond market, an investor can score impressive returns.
It’s not for the risk adverse, but even more conservative investors might want a small piece of their portfolio at risk for a potential high reward.
