Been seeing a lot of ads and YouTube videos lately showing bonds at 12%, 13%, even 14% returns. I invested in a couple of bonds on BondScanner at around 10% and thought that was decent. But now I’m wondering if I made the wrong call. Are these higher yield bonds actually safe or is the fine print doing a lot of work here?
The short answer is that yield and safety are directly connected. A bond offering 13% is offering that yield precisely because the issuer is considered riskier than one offering 10%. The credit rating tells you this explicitly. A BBB or BB rated issuer needs to offer a higher coupon to attract investors who would otherwise put their money in a higher rated bond at a lower yield.
The fine print you are worried about is usually the credit risk itself. It is not hidden, it is there in the rating and the offer document. The question is whether most retail investors actually read it.
Worth being specific about what the risk actually looks like. At 13% you are typically looking at BBB minus or lower. These issuers are not necessarily bad businesses but they are more sensitive to economic stress. A deterioration in their loan book, a rating downgrade, or a liquidity crunch hits them harder than an AA issuer. In normal conditions they pay fine. In stress conditions the probability of delay or default is meaningfully higher.
The 10% bonds you hold at a decent rating are probably A or A plus. You gave up 3 percentage points of yield for significantly less credit risk. That is not the wrong call. That is a deliberate tradeoff.
basically the 13% bond is not secretly safe and the platform is hiding something. the issuer is genuinely riskier and the yield is the compensation for that risk. it’s working as intended. whether the compensation is enough depends on how much credit risk you’re comfortable with