There are risks associated with fixed income investments, including credit risk, interest rate risk, default risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. The municipal market can be affected by adverse tax, legislative or political changes and the financial condition of the issuers of municipal securities.
Bonds sold by issuers with lower credit ratings may offer higher yields than bonds issued by higher rated or “investment grade” issuers but are usually associated with higher risks.
High yield bonds, also known as “junk bonds”, generally have a greater risk of default, which increases the risk that an issuer may be unable to pay interest and principal on the issue. In addition, high yield bonds tend to have higher interest rate risk and liquidity risk, particularly in volatile market conditions, which makes it more difficult to sell the bonds.
Before investing in high yield bonds, you should carefully consider and understand the risks.