Bond trading can be used as a partial hedging strategy for when other equities, such as shares in the stock market, are experiencing a period of market volatility. If you encounter losses on other assets, then these may be partially offset by any profits that you make through bond investments. The overall stability of your trading portfolio will also increase by adding similar and reliable securities. Movements within other markets (for example, the stock market) can sometimes affect bond prices, and in particular, bonds are sensitive to changes in interest rates. Although this can increase the chance of risk, investors can also use bonds to hedge against interest rate movements. When interest rates are low, bond prices increase and there is more purpose for trading bonds.
High-yield bonds, also known as junk bonds, are effective for diversifying your investment portfolio. This is because these bonds represent countries and companies with a lower than average credit rating, who pay higher yields to investors in order to compensate for the risk of possible higher interest rates. Traders who tend to prefer a riskier investing strategy may wish to explore high-yield bonds over government bonds, even though government bonds are better rated and represent safer and more secure investments.