High Yield Junk Bonds Business Research Paper Example | Topics and Well Written Essays - 3750 words

High Yield Junk Bonds Business - Research Paper ExampleThe incorporated ties with good or highly favorable rating grades be classified as investment-grade bonds while those with piteous ratings are called broken in-grade or speculative bonds or by their slight formal term, junk bonds (Becketti, 1990). In opposite words, based on Becketti (1990), junk bonds, low-grade bonds, and speculative bonds are synonyms. According to Becketti (1990), a bond may be classified as a junk bond for three reasons. First, the outlook for the go with may be highly unfavorable. Second, the issuing company for the bonds may have large or satisfying debts. Finally or third, is that the companys legal claim on another firms assets which is in omission or has serious risks of default may be behind the legal claims of other companies.However, Taggart pointed out that despite their low-investment grade status, junk bonds are nevertheless classified as high get bonds by those wishing to avoid pejorat ive connotations. It is very important to state, however, that although junk bonds experience more default, they as well as tend to have higher returns. More recent data are not immediately available. However, for 1974-1985, the default on junk bonds stood at 1.53% compared to 0.09% for all bonds. The 1.53% may be high compared to 0.09% but certainly 1.53% seems low enough. Further, various reports also suggest that annual return for junk bonds was 12.4% compared to 9.7% for all long-term government bonds. (Taggart, 1987, p. 12). In the 1990s, many sparing observers have attributed the countrys economic ills to junk bonds (Becketti, 1990, p. 46). Many observers be reposeved that junk bonds and economic ills simultaneously emerged in the 1980s (Becketti, 1990). However, on the observation, the appropriate interpretation is that the market for junk bonds actually became entirely popular in the 1970s and 1980s but they have been in the US economy for just about time (Becketti, 199 0). In 1977, new issues of junk bonds in the United States were close to zero but they steadily climbed up to around US$33 one thousand thousand in 1986 and to around US$30 billion in 1989 (Becketti, 1990). Becketti (1990, p. 48) argued that despite their size in the US economy for close to two decades, junk bonds are too small a part of the debt market to account for the growth in corporate debt. Further, Becketti (1990, p. 48) also argued that although junk bonds are riskier than investment-grade bonds, they are less risky than equities. Becketti (1990, p. 48) also clarified that junk bond returns lie between those of investment-grade bonds and equities. In addition, junk bonds are more liquid than bank loans and private placements but less liquid than equities (Becketti, 1990, p. 48). Junk bonds can also provide investors more control over corporate precaution than investment-grade bonds but less control than many financial instruments like equities (Becketti, 1990, p. 48). If one examines the descriptions of Becketti (1990), it should be easy to fill up that junk bonds arent too bad after all. Based on the literature that will be examined by this work on the nature of junk bonds and issues related to the acquisition of junk bonds, there is a genuine case for investing in junk bonds as well as improving the mooring of the junk bonds market. Junk bonds are risky investments but they can be part of ones investment strategy for increased wealth. Further, contrary to the view that our