Are high yield bonds equivalent to high interest deposits?
• Junk bond values are extremely volatile – easily moving by 25% in a day, based on politics, interest rate changes, economic news, etc. • Highly unlikely that a Government would bailout a high yield corporation issuing a bond . However, governments often bail out high yield deposit institutions, especially if it is one of the largest banks in the country. This is done to stabilize the financial industry. • High interest deposits are a technically superior investment than bonds with the same yields. • Bond funds often produce a negative return for a year. • No bond fund consistently outperforms its benchmark. In fact, bond funds invariably under-perform due to the fund’s costs.
