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| BondsOnline.com: instant access to and extensive coverage of over 3.5 million stocks, bonds, indexes and other securities covering major and emerging markets and exchanges across the globe. |
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| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Buy Like Buffett: Investing in Junk Bonds |
savings.com BLOG - Feb. 8, 2011 - by Mark Riddix
I am sure that just about everyone reading this post is familiar with bonds. Savings bonds are one of the most popular investments with young and old investors. You can buy them at your local bank or online at sites like Treasury Direct. Even corporate bonds are now relatively known products by just about all investors. You can purchase these bonds at online brokerages like Scottrade or e*Trade. There is, however, another type of bond product that most investors may not be as familiar with. These bonds are the riskiest of all bonds but also have some incredible yields.
The class of bonds that I am speaking of is junk bonds.
Junk Bonds
Let me start off by saying that junk bonds are for only the most adventurous investors. You may think that junk bonds are like garbage investments but they are not. Junk bonds are known as high yield debt. They are corporate bonds that have much lower credit quality.
Junk bonds are rated BB/Ba or below and are much more speculative investments than investment grade corporate bonds. A company with a lower bond rating has a greater chance of default. These differ from investment grade bonds which have ratings that range from AAA down to BBB. It makes perfect sense that junk bonds pay higher yields because investors have to be rewarded for taking on greater risks.
The Performance Of Junk Bonds
During the financial crisis, the average junk bond yield was 22%. Many patient investors went in and swooped up much of this high yield debt and were rewarded handsomely after the economy was stabilized. According to the Wall Street Journal, junk bonds are up "2.57% in 2011 to date, following returns of 15.2% in 2010 and 57.5% in 2009."
That's quite a nice run. Even now junk bonds are still yielding 7%. This may be much lower than the yields of the past few years but it still far greater than any yield that you would earn on a certificate of deposit or a United States Treasury bond. The great risk of a junk bond is the risk of default. This is the risk that an investor will not receive their interest payments and will lose their principal.
How To Pick A Junk Bond
The best way to invest in junk bonds is to look for a junk bond fund that spreads out the risk amongst higher rated junk bond securities and lower rated securities. Another option is to purchase individual junk bonds. Look for name brand companies that have been in business for years and whose ratings fall just short of investment grade bonds. You can find companies whose ratings have been upgraded and will soon be on their way to being investment quality.
As I said before junk bond investing is not for the faint of heart. Individuals that choose to invest in these bonds just may find a high yielder that has the ability to keep their portfolio running over with dividend payments for years to come.
Mark Riddix is the founder and president of New Horizons Financial Management, an independent investment advisory firm that provides personalized investing and asset management consulting. Mark is a regular contributor to Seeking Alpha and has written financial columns for Baltimore and Washington, D.C. area newspapers. Mark publishes his own financial blog, BuylikeBuffett.com and has written the book Your Financial Playbook.
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| Stuff to look at |
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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