High Yield Corporate Bonds

Credit rating agencies such as Standard & Poor’s and Moody’s have created a grading system to reflect the relative credit quality of bond issuers. The highest quality bonds are "AAA" rated. The credit scale descends to "D" rated bonds that are in default. Bonds considered to have an acceptable risk of default are "investment grade" and include "BBB" and higher rated bonds. Bonds "BB" and lower are termed "speculative grade" and have a higher risk of default. Higher credit risk requires higher bond yields than that demanded of investment grade bonds.  Higher bond yields reflect higher credit risk in contrast to the lower yields offered with investment grade bonds.

With the advent of modern portfolio theory, financial researchers soon began to observe that the "risk-adjusted" returns for portfolios of speculative grade bonds were relatively high. It became apparent that the credit risk of these bonds was more than compensated for by the higher yields. Today, many mutual funds exist that invest exclusively in high yield bonds that offer high risk-adjusted returns. Portfolios of high yield bonds are diversified by industry group and issue type to mitigate risk through diversification.

High yield bond investment relies on credit analysis of the bond issuer’s financial fundamentals. As with other investment alternatives, financial and credit expertise is required to identify those speculative grade bonds that offer high total return potential with manageable credit risk. Investors investing less than $50,000 should consult their APS Financial professional for a recommendation of a High Yield Bond mutual fund that meets their investment objectives. Investors with more substantial portfolios are encouraged to consult with their APS Financial professional to conduct a total portfolio review and risk analysis that matches portfolio make up with risk/return objectives.

• All Corporate Bond Offerings