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high yield bonds

September 20, 2012

To be sure, yields on high yield bonds – or junk, as it was once called – look less enticing than the 15% on offer three years ago. But those yields reflected fears that the global banking system was close to collapse. These have now receded, making high yield safer.

Five years after the run on the UK bank Northern Rock, companies lacking blue chip status are struggling to extract loans from banks more interested in their own survival than backing expansion.

As a result, companies are turning to the capital markets to secure loans from wealthy investors and institutions. They are paying interest charges of between 5.5% and 7% - a fat premium to the nearly zero return on savings accounts and government bonds.

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