Essay: High Yield Bonds Versus Investment Grade Bonds
How did high yield bonds versus investment grade bonds perform over this time period and why?
The yields of the high yield bonds have been very low compared to the one of the investment grade bonds. This is a proof that the high yield bonds cannot be relied upon even though they are the ones, which are expected to yield high. This further implies that the effect of recession is highly pronounced in the high yield bonds and thus their yields drops at high rates (Barnhill et al 320). It has also been shown that not many investors invested in high yield bonds during this period for the investment rate was only around 5% over the whole period. Many investors had switched to the investment grade bonds since an average of 33.3% investment rate was reported. This can be used to prove that the investors are adequately informed of the right investment choice to make when it comes to recession periods.
2. Default history – give specific details on corporate and sovereign debt
While sovereign debt is the amount owed to the holders of all bonds issued by the government of a country, corporate debt is what is owed to all holders of bonds issued by privately owned companies. It is worthy noting that a holder of a sovereign bond is not susceptible to loosing since the government has to take the liability always. However, in case of a corporate bond, the holders of the bonds can always loose their investment in case the company goes bankrupt since there is no one to pay the debts. Countries are allowed to print bonds in foreign currencies if they are prone to high inflation rates (Debt and default).
3. Look at this section as 2009 and 2010 – not one whole period
c) Stock Market Performance