High Yield “Junk” Bonds and Funds Investment Losses

High-yield bonds are generally defined as fixed-income debt with a higher yield. Also called junk bonds, this type of investment is usually unsuitable for the average investor. They are typically issued by companies in financial trouble or deemed to be highly leveraged. As well as that, these investments can be issued by smaller or emerging companies with unproven track records or financial plans that are considered high-risk or speculative.

Junk bonds are non-investment grade. This means they have been given poor credit ratings as determined by the big three rating agencies of Standard and Poor’s, Moody’s Investors Service, and Fitch Ratings. It is because high-yield bonds are more likely than investment-grade bonds to default that they must pay a higher yield to investors and offer high-interest rates as compensation.

Although high-yield bonds can render greater returns than investment-grade bonds over more extended holding periods, risks are involved. Our skilled high-yield bond lawyers represent investors who suffered losses due to being unsuitably sold these non-investment grade products by their broker-dealer.

Please contact us today at Shepherd Smith Edwards and Kantas (SSEK Law Firm at investorlawyers.com) so that we can help you explore your legal options.

There are multiple risks to investing in high-yield bonds, including:

• The risk of default is high
• Vulnerability to market volatility
• Vulnerability to outside forces, such as unemployment and COVID 19

One other significant risk is bankruptcy. However, a more common dilemma is that the rating agencies may further downgrade the bond, for example, from BB to B. When this happens, the price of the junk bond will drop in value.

Also, because high-yield bonds tend to be long-term, maturity dates may be out of range for elderly investors. Even if the bond maturity date is not too far off, there is always the risk that the security may get restructured, which could result in a new maturity date that is further out.

SSEK Law Firm is investigating the more than 140 broker-dealers who unsuitably sold L Bonds to investors. These high-yield bonds were issued by Texas-based alternative asset firm GWG Holdings, Inc. The company owes investors millions of dollars and filed for bankruptcy protection in April 2022.

If you invested in GWG L Bonds, contact our seasoned securities lawyers today to pursue financial recovery. Working with an experienced securities law firm through FINRA arbitration is your best course of action.

Most consumers do not invest (and should not be directly invested) in a junk bond. They will usually invest in high-yield bond funds (another name for junk bond funds). These portfolios of investments typically hold high-income debt securities. At least 65% of bond assets are poorly rated or unrated. Again, there are risks:

• Open-end bond funds may be subject to redemptions, which can cause forced sales within the portfolio.
• Closed-end funds, which generally trade on an exchange, may be subject to whim sales by conservative investors who get scared of volatility.
• Closed-end funds can be leveraged. The leverage may lead to internal sell-offs in down markets. This can be very bad for an investor’s portfolio. Also, a leveraged high-yield bond fund is a very speculative investment and is likely unsuitable for most consumers.

In mid-April 2022, Second Chair LLC Principal Chair Mark O. Conner published a list of the worst junk bonds under each category of performing and taxable classes, as well as their total returns (according to percentage):

• WP Income Plus Fund; Institutional (-51.97%)
• Western Asset SMASh Series Core Plus Completion Fd (-22.02%)
• Pioneer Corporate High Yield Fund; Y (-16.09%)
• AXS Sustainable Income Fund; I (-15.28%)
• Muzinich US High Yield Credit Fund; SInst (-13.30%)

• MFS Charter Income Trust (XNYS:MCR) (-19.01%)
• Western Asset Gl Hi Inc. (XNYS: EHI) (-18.47%)
• PGIM Short Duration High Yield Opportunities Fund (XNYS: SDHY) (-18.30%)
• Western Asset Hi Inc II (XNYS: HIX) (-16.49%)
• First Trust HYO 2027 Trm (XNYS: FTHY) (-14.16%)

• High Yield ETF (ARCX:HYLD) (-12.85%)
• Tidal: ATAC Credit Rot (ARCX: JOJO) (-11.58%)
• Invesco GI ST HY Bd (ARCX: PGHY) (-10.31%)
• Xtrackers JPM ESG HY CB (BATS:ESHY) (-9.84%)
• Xtrackers Hi Beta Hi Yld (ARCX: HYUP) (-9.66%)

• PIMCO Total Return Fund; Institutional (-11.89%)
• Principal Street High Income Municipal Fund; Inv (-10.85%)
• Franklin High Yield Tax-Free Income Fund; A (-9.83%)
• Invesco Rochester Municipal Opp Fund; A (-8.78%)
• Northern High Yield Municipal Fund (-8.51%)

• Rareview Tax Adv Inc (BATS:RTAI) (-12.82%)
• VanEck: Muni Alloc (BATS:MAAX) (-10.74%)
• Franklin ETF: Lib Fed TFB (ARCX:FLMB) (-10.57%)
• SPDR Nuv Bbg Muni Bd (ARCX:TFI) (-10.05%)
• Overlay Shs Muni Bd ETF (ARCX: OVM) (-9.54%)

• Pioneer Municipal High Income Opportunities Fund, Inc. (XNYS: MIO) (-28.47%)
• Pioneer Muni High Income (XNYS: MHI) (-19.53%)
• MFS High Inc Muni (XNYS: CXE) (-19.08%)
• Pioneer Mu Hi Inc Advt (XNYS: MAV) (-19.07%)
• MFS High Yld Muni (XNYS:CMU) (-16.78%)

Conservative or even moderate investors should not invest in high-yield bonds or bond funds. Retirees especially should avoid them as the recovery time can be quite lengthy, assuming the junk bond/fund does recover. Yet there continue to be unscrupulous brokers who may misrepresent the true nature of these types of high-yield bonds/ funds to get customers to invest.

There have been several bond-related crises over the past few decades. In each of them, SSEK Law Firm has been at the forefront of helping investors recoup their losses. Our experience in this particular field is matched by few firms nationwide. We offer a free, no-obligation case consultation. You can also contact SSEK Law Firm at (800) 259-9010 today.