Excess risk taking and over borrowing are the two factors that could make buying bonds a negative affair. According to an article in the Wall Street Journal, bonds may be losing their reputation as the safest investment and borrowing option. Bonds are now losing their ability to be kept as a prediction point of things to come. CFO's are partly to blame because of their eagerness to keep impressive cash flow running (Mackintosh, 2018).
This leads them to borrow as much money as they can get away with. The classification of investment bonds versus junk bonds is now being researched as the mere classification can determine the future success of the business. Besides this, the rating of high quality bonds has been downplayed given that these bonds are no longer as powerful as they used to be.
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The article provides great inside on the role that bonds play in the investment world. This article expand the role of bonds from mere investments and gives them the role of a spot light. They shine the light into the financial condition or status of the company. It becomes possible to prevent or reduce the risk of money loss because the company is now clearly branded. The investors go into the process of buying with ample information to make a sound financial decision (Tsai, 2014).
The article makes it clear that tax free and taxable bonds have more to them than mere prediction of return on investment. They can also save shareholders from the potential loss of income as a result of company collapse. However, both the article and the previous understanding of bonds show that the predictive factor is nit set in stone. A company's bond may be considered junk but it may emerge stronger. The bond will therefore be a hint and not the final consideration for decision making.
References
Mackintosh J. (2018) There Have Never Been So Many Bonds That Are Almost Junk. Wall Street Journal . Retrieved from https://www.wsj.com/articles/there-have-never-been-so-many-bonds-that-are-almost-junk-1537466036
Tsai, H. J. (2014). The informational efficiency of bonds and stocks: The role of institutional sized bond trades. International Review of Economics " Finance , 31 , 34-45.
