High-yield bonds – also known as “junk” bonds – are fixed income securities that carry a rating of “BB” or lower by Standard & Poor’s or a rating of “Ba” or lower by Moody’s. Junk bonds have a much higher risk of default than investment grade bonds and are by definition speculative investments. While they have great appeal due to their higher yields, they are not appropriate for conservative investors. Indeed, it is illegal in many states for even sophisticated financial institutions such as banks to purchase such bonds.
Suitability is an issue even for investors with a moderate to high risk tolerances, if the risks are misrepresented or if the investor’s portfolio suffers from overconcentration in such bonds. Junk bonds frequently have larger spreads than other bonds, resulting in larger commissions for the broker, and thereby creating an incentive for abuse.
If you have lost money on below investment grade “junk” bonds, contact the attorneys at PCJ Law for a free, informative consultation at 901-820-4433.