Wednesday, September 28, 2011

Price risk in the junk bond market

In one of my classes we've been talking about price risk and reinvestment risk for bonds.  These occur when market rates move from the initial YTM that an investor purchased the bond off of.  A great example is the current junk bond market where yields have risen very high and resulted in prices falling dramatically.  As a result year to date returns on these bonds are now negative.

Article here, HT Felix Salmon