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Worldcom didn't actually use off-balance sheet debt; they classified operating expenses as capital expenditures to boost their reported earnings.
High Yield is less interest sensitive than investment grade partly because they usually contain early redemption features which allows the company who issues the debt to repay the debt early. A good portion of the return is also in the form of repaymeny of principal above par so there is a large element of principal baked into the total return of a junk bond.
To the uninformed, it is very confusing that the title of the article is not mentioned in the first paragraph. Is "debt" now synonymous with "bond"? I'm in bond then.
- I just took a look, I'm not sure how to rewrite it just yet in a way that makes sense. Do you have any suggestions? By the way, the 2 are synonymous. Bonds are vehicles through which companies raise money by borrowing, just as stocks are vehicles through which companies raise money by selling ownership of the company. Tristanreid 16:38, 15 February 2006 (UTC)
How about calling a 'bond' an "IOU" or "an instrument representing a specific, pre-defined debt agreement". I define debt as a condition of owing on a variety of debts, whereas a bond refers to a specific component within a financial profile. While a bond is surely a form of debt, debt is not necessarily a bond, so I do not see them as synonyms, because although they are both nouns, bond refers to a specific piece of one's debt, while debt is a more encompassing noun or even a condition. A bond is a specific debt clearly defined and arranged by definiton. Its a way to plan your debt so that you and the lender(s) are protected by very specific terms which have now become standardized to the point that our economy considers them a staple of our financial economy.
Reclassification as a junk bond
The article states "Bonds rated lower than investment grade on their date of issue are colloquially referred to as 'junk' bonds" and states that the interest rate is higher as a result. I'd like to see a discussion of the impact of an investment grade bond being reclassified to junk status, since the interest rate is already fixed at that point. Stracci 14:32, 1 February 2007 (UTC)
Also keep in mind "junk bond" was a smear term used to try and stem off competition from financial centers in the mid-west/south. Sh0t 11:55, 1 May 2007
- I took care of both matters. The non-investment grade bonds are properly known as speculative grade bonds. The effect you mention is in reference to what are called "fallen angels," which is what Milken dealt in before he started organising the issuance of bonds that actually started life as speculative to begin with. JJMcVey 10:52, 15 September 2007 (UTC)
The phrase 'Toxic Assets' redirects here but is not mentioned at all in the article. IMO either the redirect is wrong, or the article should reference the phrase at some point.
imho this is really a very non-neutral name for an article .... however
the 'industry' has decided to use this 'phrase' to describe these... "investments". sooo its kind of just "one of those things". no matter what name you put it under it is going to be non neutral, i cant think of a neutral name for these "assets". maybe someone who is an expert in the field could come up with something... oh well. i guess we are stuck with it for now though. Decora (talk) 22:57, 1 May 2010 (UTC)
- Which phrase are you talking about? The term high-yield in the article's title is a neutral and objective one to describe this class of assets. Also, I don't understand why you put the words investments and assets in double-quotes. Are you implying they aren't really such? The SEC and accounting regulations define them as such, so you better get used to the idea that despite their high-yield, they are both investments and assets. Owen× ☎ 14:36, 2 May 2010 (UTC)
Questionable paragraph (re style and tone)
On the whole this a very good article. However there is one paragraph which suffers from a noticably different tone and is generally poor in quality compared to the rest of the article.
Perhaps an expert can have a look at it. The offending paragraph is the third under the heading "3.2 Debt repackaging and subprime crisis" and at time of posting this comment read as follows: "Such assets represent a serious problem for purchasers because of their complexity. Having been repackaged maybe several times, it is difficult and time-consuming for auditors and accountants to determine their true value. As the recession of 2008-9 bites, their value is decreasing further as more debtors default, so they represent a rapidly depreciating asset. Even those assets that might have gone up in value in the long-term are now depreciating rapidly, quickly becoming "toxic" for the banks that hold them. Toxic assets, by increasing the variance of banks' assets, can turn otherwise healthy institutions into zombies. Potentially insolvent banks have made too few good loans creating a debt overhang problem. Alternatively, potentially insolvent banks with toxic assets will seek out very risky speculative loans to shift risk onto their depositors and other creditors." 220.127.116.11 (talk) 08:35, 19 May 2010 (UTC)
What on earth are we getting? Quarter by quarter reviews of debt and yield news? Reminder, WP is WP:NOTNEWS! These edits are not global in nature or enduring in time. Unless there is some editing justification for such material, I'm taking it out. – S. Rich (talk) 02:42, 11 October 2013 (UTC)