High Yield Bonds
TYPES OF HIGH-YIELD BONDS
As the high-yield market has grown, companies
have become more creative with the shape and
structure of bond issues. The following varieties of
issues may be found in today’s market:
Straight cash bonds are the high-yield market’s
“plain vanilla” bond, offering a fixed coupon rate of
interest that is paid in cash, usually in semiannual
payments, through the maturity or call date.
Split-coupon bonds offer one interest (coupon)
rate in the early years of the bond’s life, followed by
a second interest rate in later years. Split-coupon
issues in which the interest rate increases in later
years are also called step-up notes.
Pay-in-kind bonds allow the issuer the option of
paying the bondholder interest either in additional
securities or in cash.
Floating-rate and increasing-rate notes (IRNs) pay
fluctuating or adjusted rates of interest based on an
interest rate benchmark or a schedule of payments.
Extendable reset notes give the issuer the option
of resetting the coupon rate and extending the
bond’s maturity at periodic intervals or at the time
of specified events. In exchange for these options,
the bondholder has the right to sell, or “put,” the
bond back to the issuer.
Deferred-interest bonds pay no interest to the
bondholder until a future date.
Zero-coupon bonds (“zeros”) are sold at a deep
discount to their face value upon issuance and pay no
interest to the bondholder until accreted at maturity.
Convertible bonds may be converted into shares of
another security under stated terms. The security is
often the issuing company’s common stock.
Multi-tranche bonds offer bondholders several
tiers of investments within the same issue. Typically,
the tiers may vary in their targeted maturities and
NOTE: All information and opinions contained in this publication were produced by
the Securities Industry and Financial Markets Association from our membership
and other sources believed by SIFMA to be accurate and reliable. By providing this
general information, SIFMA makes no recommendation as to the
appropriateness of investing in fixed-income securities, nor is it providing
investment advice for any investor. Due to rapidly changing market conditions and the
complexity of investment decisions, supplemental information and sources may be
required to make informed investment decisions.