This category includes securities issued by entities whose creditworthiness is rated below investment grade. The elevated yield of such bonds is not an advantage but compensation for the probability of default.
A key mistake when working with them is assessing yield in isolation from expected losses. The correct approach accounts for default probability and recovery rate upon default: an issue with yield twice the market rate may deliver negative results when adjusted for risk.
The second characteristic is low liquidity during adverse periods. Precisely when the desire to exit arises, buyers become fewest, and spreads widen sharply.
A sound approach to such bonds is only as part of a diversified portfolio and in a small allocation, with readiness to accept losses on individual positions. Concentrating a significant portion of savings in one high-yield issue is a common way to lose substantial amounts, and the high rate here serves as a warning rather than an invitation.