Junk Bond Investments And Its Effects On Investors And Issuers

958 Words Aug 19th, 2015 4 Pages
Though junk bonds do have undesirable impacts on investors and issuers, they do play a vital role in American finance market and have left a great amount of enduring legacies. There are a number of advantages that can fully demonstrate the importance and meaningfulness of junk bonds. Firstly, junk bond investments offer consumer and companies a flexible financial instrument to achieve maximum returns and increase interest payments. Milken, who took high-yield bonds from a cottage industry to one of the cornerstones of the financial industry, indicated that junk bond is a better bet than higher-grade bonds (Yago, 2003). In the current monetary environment with low-interest rate, junk bonds have served as one of the financial instruments offering a compelling yield. Therefore, investors have an incentive to take risks in searching for higher returns. As revealed in The Economist (2010), the issuance of junk bond had shown an increasing trend from the $150 billion up to $1 trillion and that the revival is likely to be driven by an updated research for junk bond by investors, people were disappointed with the poor returns on cash or treasuries. This means that junk bond provides investors with a broader way to make their asset get the maximum premiums. Secondly, junk bond can help enterprises, especially the small and medium-sized companies, be out of debt obligations. Indeed, many companies which are previously well-preformed in the business market run into financial…
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