Attractive yields drive demand for corporate bonds

managed income

Investors are buying high yield because they like the income, not because they understand the risks involved in what they are doing

On the face of it, 2003 has been an uninspiring year for bonds. Yields have surged, and prices have fallen, as improving global economic prospects led investors to anticipate higher interest rates. There is big variation among different segments of the corporate bond market. AAA-rated bonds, which carry the lowest default risk, have barely inched up 1%, whereas their supposedly riskier BBB-rated counterparts have risen 7%. Meanwhile, high-yield bonds - those issued by companies rated below investment grade by the leading rating agencies because they are considered far more likely to defau...