8/13/2019 16- What Are the Risks

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8/13/2019 16- What Are the Risks

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11/12/13 What Are the Risks?

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does liquidity risk. High-yield bonds can sometimes be less liquid than investment-grade bonds, depending on the iss uerand the market conditions at any given time.

Economic riskdescribes the vulnerability of a bond to downturns in the economy. For example, in 1990, when the U.S. GDPwent into a decline that lasted three consecutive quarters, the principal value and the total return of high-yield bonds declinedsignificantly. Virtually all types of high-yield bonds are vulnerable to economic risk. In recessions, high-yield bonds typicallylose more principal value than investment-grade bonds. If investors grow anxious about holding low-quality bonds, they maytrade them for the highes t-quality debt, such as U.S. Treasuries and investment-grade corporate bonds. This flight toquality particularly impacts high-yield iss uers.

Company and industry event riskencompass es a variety of pitfalls that can affect a companys ability to repay its debt

obligations on time. These include poor management, changes in m anagement, failure to anticipate shifts in the companysmarkets, ris ing costs of raw materials, regulations and new competition. Events that adversely affect a whole indus try canhave a blanket effect on the bonds of its mem bers.

All information and opinions contained in this publication were produced by the Securities Industry and Financial MarketsAss ociation from our membership and other sources believed by the Ass ociation to be accurate and reliable. By providingthis general information, the Securities Industry and Financial Markets Association makes neither a recommendation as tothe appropriateness of investing in fixed-income securities nor is it providing any specific investment advice for any particulainvestor. Due to rapidly changing m arket conditions and the complexity of investment decisions , supplem ental informationand sources m ay be required to make informed investment decisions .

2005-2013 The Securities Industry and Financial Markets Association