What’s the difference between distressed securities and junk bond?
High yield bond or more popular called junk bond is for all non-investment grade bonds (below triple B). Distressed securities are all financial instruments from distressed firms: bonds, equities, trade receivables… The bonds from distressed firms belong to the riskiest part of junk bonds.
not sure if everyone follows this, but an old definition of distressed bond was spread in excess of 10%, or was it yield? spread, i think… of course, during credit crisis, this was alot of bonds
westbruin - spread because it gives you relative yield - using absolute yield does not tell you much not all high yield bonds are distressed securities because some are not in default or bankruptcy - on the other side distressed securities include more than bonds
In terms of fixed income securities, distressed security that is one that started of with a high credit rating e.g. AA and has been downgraded many ratings/notches though it is not in “default”. Junk Bond are High Yield securities generally in the single B’s rating.