Junk Bonds

Junk Bonds Get Crushed. Investors Sue For Losses

Bonds have taken some huge losses due to the Federal Reserve Bank increasing interest rates. Unfortunately, many financial advisors marketed and sold high-yield bond funds, even though they may not be suitable for their customers. This is due to the high commissions and fees that financial advisors can make.

Some brokers claim that the manager of the fund will manage client risks. This is almost impossible. A broker may also promote a high yield bond fund’s modest yield rise while minimizing the risks to attract investors. High-yield bonds funds should be avoided by older conservative investors and retirees.

Higher-yield bonds tend to be lower quality than those in high-yield bond funds. They typically have high-income debt securities, in which at minimum 65% of the bond assets are not rated or rated poor at the BB level. Although junk-bond funds have higher yields than other portfolios they are more susceptible to credit risks and the economy.

There is also the possibility of default, or that one of the credit agencies will continue to downgrade junk bonds and cause their value to fall further. Recoveries from investment losses in junk bonds may be difficult for novice investors. The risks of investing in high-yield bonds are not suitable for novice investors, as their recovery time can be long. In cases like these, the stockbroker may have misled an investor into buying a junk bond and he may be liable for the loss. Fortunately, there are several ways to pursue a recovery from investment losses in junk bonds.

Investors of high yield bond funds are eligible for free consultations by Haselkorn & Thibaut by calling 1-800-856-3352.

High-yielding securities

The market for high-yield bonds has been steadily growing over the past several decades, despite the financial crisis of 2008. During the 1990s, the high-yield market reached $69 billion, the lowest amount in seven years. High-yield bonds are typically issued by companies seeking growth capital, working capital, or refinancing debt. They tend to have high interest rates, so they’re good investments for investors with a low tolerance for risk.

High risk of default

If you’re considering investing in junk bonds, be aware that they carry a high risk of default. A bond’s default means that the owner of the bond will fail to make his or her payments on time. When a bond fails to make its payments, the investor will lose the entire amount they invested in the bond. A default can also damage other debtors, so make sure to read your bond’s covenant carefully.

Higher returns

The high default rate of junk bonds, combined with the general decline in U.S. economic activity, resulted in disappointing total returns for investors. In the decade from 2000 to 2002, the default rate averaged 9.2 percent. The number of defaults spiked in 2002, the worst year on record. By 2003, however, default rates had declined considerably, and the high-yield market was once again in a bull market. In addition, telecom defaults were a thing of the past, as the U.S. economy recovered from the recession.

Credit rating

The price of junk bonds depends on the credit rating of the issuing company. When the company’s credit rating improves, it will attract new investors, which in turn will raise the bond’s price. Conversely, if the rating declines, the company will be less attractive to investors, and the interest rate will increase. This higher interest rate will offset the greater risk associated with investing in the company. As a result, investors should consider their risk tolerance before purchasing junk debt.

Recoveries from investment losses

Recoveries from investment losses in junk bonds may be difficult for novice investors. The risks of investing in high-yield bonds are not suitable for novice investors, as their recovery time can be long. In cases like these, the stockbroker may have misled an investor into buying a junk bond and he may be liable for the loss. Fortunately, there are several ways to pursue a recovery from investment losses in junk bonds.

BOND FUNDS

  • WP Income Plus Fund; Institutional (-51.97%)
  • Western Asset SMASh Series Core Plus Completion Fd (-22.02%)
  • Pioneer Corporate High Yield Fund; Y (-16.09%) 
  • AXS Sustainable Income Fund; I (-15.28%)
  • Muzinich US High Yield Credit Fund; SInst (-13.30%)

HIGH YIELD CLOSED-END BOND FUNDS

  • MFS Charter Income Trust (XNYS:MCR) (-19.01%)
  • Western Asset Gl Hi Inc. (XNYS: EHI) (-18.47%)
  • PGIM Short Duration High Yield Opportunities Fund (XNYS: SDHY) (-18.30%)
  • Western Asset Hi Inc. II (XNYS: HIX) (-16.49%)
  • First Trust HYO 2027 Trm (XNYS: FTHY) (-14.16%)

HIGH YIELD EXCHANGE-TRADED BOND FUNDS 

  • High Yield ETF (ARCX:HYLD) (-12.85%)
  • Tidal: ATAC Credit Rot (ARCX: JOJO) (-11.58%)
  • Invesco GI ST HY Bd (ARCX: PGHY) (-10.31%)
  • Xtrackers JPM ESG HY CB (BATS:ESHY) (-9.84%)
  • Xtrackers Hi Beta Hi Yld (ARCX: HYUP) (-9.66%)

HIGH YIELD MUNICIPAL BOND FUNDS

  • PIMCO Total Return Fund; Institutional (-11.89%)
  • Principal Street High Income Municipal Fund; Inv (-10.85%)
  • Franklin High Yield Tax-Free Income Fund; A (-9.83%)
  • Invesco Rochester Municipal Opp Fund; A (-8.78%)
  • Northern High Yield Municipal Fund (-8.51%)

HIGH YIELD MUNICIPAL BOND ETFs

  • Rareview Tax Adv Inc (BATS:RTAI) (-12.82%)
  • VanEck: Muni Alloc (BATS:MAAX) (-10.74%)
  • Franklin ETF: Lib Fed TFB (ARCX:FLMB) (-10.57%)
  • SPDR Nuv Bbg Muni Bd (ARCX:TFI) (-10.05%)
  • Overlay Shs Muni Bd ETF (ARCX: OVM) (-9.54%)

HIGH YIELD MUNICIPAL BOND CLOSED-END FUNDS

  • Pioneer Municipal High Income Opportunities Fund, Inc. (XNYS: MIO) (-28.47%)
  • Pioneer Muni High Income (XNYS: MHI) (-19.53%)
  • MFS High Inc Muni (XNYS: CXE) (-19.08%)
  • Pioneer Mu Hi Inc Advt (XNYS: MAV) (-19.07%)
  • MFS High Yld Muni (XNYS:CMU) (-16.78%)
Free AlphaBetaStock's Cheat Sheet (No CC)!+ Bonus Dividend Stock Picks
Scroll to Top