High-Yield Bond

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High yield bonds can be defined as high paying bonds with lower credit ratings (rated below BBB− or Baa3 by credit rating agencies) than investment-grade corporate bonds, treasury bonds and municipal bonds. High yield bonds play a crucial role in providing portfolio diversification benefits because the high yield sector usually has a low correlation with other sectors of the fixed income market and less sensitivity to interest rate risk. These bonds have the potential for appreciation in price in case of improvement in the economy or issuing company’s performance while the prices can fall during a worsening situation.

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