Bloomberg Market Concepts (BMC) Practice Exam 2025 - Free Bloomberg Market Concepts Practice Questions and Study Guide

High yield bonds are typically associated with high credit risk. These bonds are issued by companies or entities with lower credit ratings, which indicates a higher likelihood of default on interest payments or principal repayment. Investors are compensated for the additional risk they take on by receiving higher yields compared to investment-grade bonds. This higher yield serves as an incentive for investors to buy these bonds, despite the increased risk of investment loss.

Low liquidity may be present in some high yield bonds, but it is not a universal characteristic; many high yield bonds can be quite liquid depending on the market conditions and the issuer. Stable returns are generally not associated with high yield bonds since their higher risk can lead to volatility in returns. Government backing is typically found in government bonds, not in high yield corporate bonds, which rely on the issuer’s financial health for repayment. Hence, the characteristic of high credit risk is fundamentally what defines high yield bonds.