Simplistic and overly favorable to high yield bonds

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Reference no: EM132010251

It is standard practice to compare the yield spreads between high yield bonds and Treasury securities to the annual default rates and loss rates on high yield bonds. Such comparisons generally conclude that the yield compensation is more than sufficient to cover the expected default losses. Why is this approach too simplistic and overly favorable to high yield bonds?

Reference no: EM132010251

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