In today’s crazy interest rate world, investors are searching high and low for more interest income. One place to find it is in high-income bond mutual funds called HIGH YIELD bond funds. Let’s look at June of 2009. If you required a real high degree of safety, you could get a bit over 2% a year if you tied your money up for 5 years in a bank CD. If you were willing to accept a moderate level of risk, many bond funds were yielding (paying) 5% or 6%. High yield bond funds were also available from large mutual fund companies that offered yields of 10% and more.
How can a bond fund pay interest rate yields of 10% when interest rates are near historical lows? These high yield bond funds invest in lower-quality bonds, sometimes referred to as “junk”. Hence, the term often used to describe these mutual funds is JUNK BOND FUNDS. At the one extreme you have high quality “investment grade” bonds and bond funds. These are issued by entities with very high credit ratings, and the risk of default to investors is low. Continue reading ‘High Income Bonds and Bond Funds’ »
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