SEC Investor Bulletin: What Are High-Yield Corporate Bonds? (with Lofchie Comment)

The SEC's Office of Investor Education and Advocacy issued an Investor Bulletin regarding high-yield corporate bonds. According to the Bulletin, a high-yield corporate bond is a type of corporate bond that offers a higher rate of interest because of its higher risk of default. High-yield bond issuers are often companies characterized as highly leveraged or which are experiencing financial difficulties. Similarly, smaller or emerging companies may also issue high-yield bonds to offset unproven operating histories.

High-yield corporate bonds are very risky. Investors considering purchasing a high-yield bond should thoroughly understand the types of risks involved, including default risk, interest rate risk, economic risk, and liquidity risk. An investor's decision to purchase a high-yield bond should be based on his individual circumstances, including their income and net worth, investment objectives, risk tolerance, time horizon and other security holdings. Investors should carefully read primary offering documents, including the prospectus.

Lofchie Comment: Broker-dealers may want to consider passing along relevant Investor Bulletins to their retail customers.

See: Investor Bulletin: What Are High-Yield Corporate Bonds?