Junk Bonds: Everything You Need To Know – Investopedia

CHAPEL HILL, N.C. — If you’re the worrying investor type — and there appear to be fewer and fewer of us these days — then look no further than the shrinking spread between the yields on junk bonds and comparable Treasurys.

This spread, sometimes referred to as the high-yield (or junk) spread, is currently in the vicinity of 3.5 percentage points (as judged by the BofA Merrill US High Yield Option-Adjusted Spread). That means that junk-bond investors on average are requiring that they be paid a yield of just 3.5 percentage points more than if they had instead invested in Treasurys of the same maturities.

That’s not much compensation for the considerably higher risk associated with junk bonds. The bonds are called “junk” for reason, after all; it’s not clear that their issuers will survive unless all the economic stars are in alignment. An economic downturn would be fatal to many of them, and in that event junk bond investors wouldn’t just forfeit their interest payments — they’d lose principal as well.

Mattel Inc.’s bonds were slammed Monday, after the toy maker‘s credit rating was slashed to “junk” status by two rating agencies, in the wake of the company’s lowered outlook for the crucial holiday sales season.

The most-active bonds, the 2.350% notes that mature in August 2021, fell about 3 points to 92.274 cents on the dollar to yield 4.663%, or at a yield spread of 252 basis points over Treasurys, according to trading platform MarketAxess.

The company disclosed Monday in a filing with the Securities and Exchange Commission that based on preliminary fourth-quarter data, it expects 2017 sales to decline “at least” in the “mid-to-high single digits” percentage range from 2016, given tighter inventory management by its retail partners and challenges in the Toy Box and certain underperforming brands. The FactSet revenue consensus of $5.11 billion implies a 6.3% decline from last year.

Below average risk premium reflects rising yields on U.S. Treasury bonds and declining yields on speculative grade securities.

CHAPEL HILL, N.C. — If you’re the worrying investor type — and there appear to be fewer and fewer of us these days — then look no further than the shrinking spread between the yields on junk bonds and comparable Treasurys.

This spread, sometimes referred to as the high-yield (or junk) spread, is currently in the vicinity of 3.5 percentage points (as judged by the BofA Merrill US High Yield Option-Adjusted Spread). That means that junk-bond investors on average are requiring that they be paid a yield of just 3.5 percentage points more than if they had instead invested in Treasurys of the same maturities.

That’s not much compensation for the considerably higher risk associated with junk bonds. The bonds are called “junk” for reason, after all; it’s not clear that their issuers will survive unless all the economic stars are in alignment. An economic downturn would be fatal to many of them, and in that event junk bond investors wouldn’t just forfeit their interest payments — they’d lose principal as well.

CHAPEL HILL, N.C. — If you’re the worrying investor type — and there appear to be fewer and fewer of us these days — then look no further than the shrinking spread between the yields on junk bonds and comparable Treasurys.

This spread, sometimes referred to as the high-yield (or junk) spread, is currently in the vicinity of 3.5 percentage points (as judged by the BofA Merrill US High Yield Option-Adjusted Spread). That means that junk-bond investors on average are requiring that they be paid a yield of just 3.5 percentage points more than if they had instead invested in Treasurys of the same maturities.

That’s not much compensation for the considerably higher risk associated with junk bonds. The bonds are called “junk” for reason, after all; it’s not clear that their issuers will survive unless all the economic stars are in alignment. An economic downturn would be fatal to many of them, and in that event junk bond investors wouldn’t just forfeit their interest payments — they’d lose principal as well.

Mattel Inc.’s bonds were slammed Monday, after the toy maker‘s credit rating was slashed to “junk” status by two rating agencies, in the wake of the company’s lowered outlook for the crucial holiday sales season.

The most-active bonds, the 2.350% notes that mature in August 2021, fell about 3 points to 92.274 cents on the dollar to yield 4.663%, or at a yield spread of 252 basis points over Treasurys, according to trading platform MarketAxess.

The company disclosed Monday in a filing with the Securities and Exchange Commission that based on preliminary fourth-quarter data, it expects 2017 sales to decline “at least” in the “mid-to-high single digits” percentage range from 2016, given tighter inventory management by its retail partners and challenges in the Toy Box and certain underperforming brands. The FactSet revenue consensus of $5.11 billion implies a 6.3% decline from last year.

 
 
 
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