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Taking this distortion to yet another level, compared to high yield bonds, blue-chip, high quality stocks look incredibly cheap!
FORBES: Stocks And Bonds: Distortions Are Surfacing In The Markets
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The yield on high-yield bonds has risen to 9.33%, the highest level since 2002 and a sign of growing default risk, even though defaults remain near a historic low.
ECONOMIST: Business and the credit crunch
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In any case, if Treasury rates rise substantially from their present level, history strongly suggests that high yield bonds will be comparatively well cushioned.
FORBES: Are "High" Yield Bonds At Only 7% Worth The Risk?
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While this can make for a high dividend yield, it also introduces some volatility and uncertainty into the level of payments from year to year huge dividend payouts are common when a REIT turns large profits, versus smaller payouts or even periods of no dividends in times of losses.
FORBES: Why Two Harbors Investment Is a Top 10 REIT Stock With 9.23% Yield
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At the beginning of 2004, the real yield of the high yield index stood at 5.20%, only slightly higher than the May 2011 level of 4.78%.
FORBES: Are "High" Yield Bonds At Only 7% Worth The Risk?