Bond Investment Strategies

Maximizing Income

If your goal is to maximize your interest income, you will usually get higher coupons on longer-term bonds. With more time to maturity, longer-term bonds are more vulnerable to changes in interest rates. If you are a buy-and-hold investor, however, these changes will not affect you unless you decide to sell your bonds.

In the corporate market, bonds with lower credit ratings typically pay higher income than higher rated credits with comparable maturities.

High-yield corporate bonds (or the investor might have heard the word “junk” bonds) typically offer above-market coupon rates and yields because their issuers have credit ratings that are below investment grade: BB or lower from Standard & Poor’s; Ba or lower from Moody’s. The lower the credit rating, the greater the risk that the issuer could default on its obligations, or be unable to pay interest or repay principal when due.

If you are thinking about investing in high-yield corporate bonds, you will also want to diversify your bond investments among several different issuers to minimize the possible impact of any single issuer’s default. High yield bond prices are also more vulnerable than other bond prices to economic downturns, when the risk of default is perceived to be higher.

These materials have been prepared for informational purposes only and do not constitute investment advice of any kind, or an offer to buy, sell or promote any products or services. No investment decision should be made based on these materials. Please read our Terms & Conditions of Use