High-yield debt
Default risk
Default risk
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As indicated by their lower [credit ratings](/wiki/Credit_rating "Credit rating"), high\-yield debt entails more risk to the investor compared to [investment grade](/wiki/Investment_grade "Investment grade") bonds. Investors require a greater [yield](/wiki/Yield_%28finance%29 "Yield (finance)") to compensate them for investing in the riskier securities.

In the case of high\-yield bonds, the risk is largely that of default: the possibility that the issuer will be unable to make scheduled interest and principal payments in a timely manner. The default rate in the high\-yield sector of the U.S. bond market has averaged about 5% over the long term. During the liquidity crisis of 1989–90, the default rate was in the 5\.6% to 7% range. During the [COVID\-19 pandemic](/wiki/COVID-19_pandemic "COVID-19 pandemic"), default rates rose to just under 9%. A [recession](/wiki/Recession "Recession") and accompanying weakening of business conditions tends to increase the possibility of default in the high\-yield bond sector.


What other types of investments besides bonds are considered high-risk?