Below - S&P U.S. High Yield Bond Indices track the performance of "junk bonds" in the United States. They have increased nearly 20% in 2016. How did the FED made this happen? The FED's monetary policy has resulted in interest rates that are close to 0. A Normal-Interest-Rate Economy High-Yield Bonds - High Risk/High Return High-Credit-Rating Bonds - Low Risk/Low Return A Low-Interest-Rate Economy High-Yield Bonds - High Risk/High Return High-Credit-Rating Bonds - Low Risk/Lower Return Investors typically seek the most return with a level of risk they can tolerate. When "safe" bonds offer little to no return, investment in alternatives increases. Low interest rates create more junk bond investment. Why is this Bad?
1. Lenders face a higher risk of default. 2. Companies that shouldn't be invested in receive more money.
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