Tags: WSJ | handle | junk | bonds

WSJ: Understanding the Worth of Junk Bonds

By    |   Sunday, 07 September 2014 08:43 PM

It's been an up-and-down ride for high-yield (junk) bonds this summer.

Prices plunged in late July and early August, as investors abandoned the category. But high-yield bonds have recovered since then. 

The Barclays U.S. Corporate High Yield bond index has returned 5.2 percent so far this year, as investors have sought out high yields in an environment of historically low interest rates.

Editor's Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)

Experts recommend devoting up to 5 percent of your fixed-income portfolio to high-yield bonds, according to The Wall Street Journal.

"Holding both investment-grade and junk-bond funds is a better idea [than holding junk alone], and makes it less likely you'll be thrown off a cliff if junk bonds lose favor for an extended period," writes Journal reporter John Wasick.

To be sure, junk bonds often perform better than Treasurys when interest rates rise. That's because rising rates generally signify the economy is doing well. And when the economy is doing well, fewer companies tend to default on their bonds.

Meanwhile, a sharp run-up in junk bond yields can indicate trouble ahead for stocks. "High-yield is the first sign you have that something could be wrong," investment consultant Komal Sri-Kumar told The New York Times.

"It doesn’t have to give rise to a 2008 type of collapse, but it tells you there is excess liquidity in the system."

While easy credit has been the rule of the last few years, "at some point a switch goes off, and people say it can’t go on forever," he said.

Editor's Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)

Related Articles:

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
Finance
It's been an up-and-down ride for high-yield (junk) bonds this summer. But high-yield bonds have recovered as investors appreciate the strengths and weaknesses of the debt.
WSJ, handle, junk, bonds
295
2014-43-07
Sunday, 07 September 2014 08:43 PM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved