Fixed-Interest Security

finance a la shmoop. what are high-yield or junk bonds? alright well here are low

yield bonds, you know Apple Microsoft you know, safe secure sleep [charts]

like a baby even for Chicken Little those kind of bonds. the sky is not

falling. all right well here are high-yield bonds Sears you know Toys R

Us aren't they bankrupt already best buy well someday bankrupt ,yeah not safe not

secure, the sky among other things like credit ratings is in fact falling. well [definitions on screen]

why do high-yield bonds yield a lot that is they pay a lot of interest to

investors why do they do that answer because they have to. right but

why why do they have to? well because the bonds are risky either the business is

in danger of dying, or the business has borrowed so much money that it's in [ best buy pictured]

danger of not being able to pay back the loans. that is their operating profit is

just barely enough to pay the interest costs on all the loans they've borrowed

so the risk of default is high and investors demand very high interest for

taking on the risk of having to go through a potential bankruptcy. the term

junk was coined in the 1980s when the now-defunct investment bank Drexel [100 dollar bill]

Burnham Lambert sold boatloads of bonds which had dubious creditworthiness in

weak backing and so the boatloads of bonds sank and ended up as basically

junk. and not the Chinese junk that actually sales, a different kind of junk.

anyway unlike your fancy triple-a bonds which you can see here on this lovely [ boat sails on a lake]

table ,those junk bonds were riskier than us women in shark-infested waters with a

bloody nose. so what's the best way to encourage people to do risky possibly

dangerous things ?well pay them a lot of money. so that's why junk bonds yield

such killer returns for investors because otherwise well these things [two people frown in front of bond store]

would never leave the shelf.