[toast0]

> 2. Those bonds are now trading for less than their face value. That means that if you buy one of those bonds on the secondary market, you will get a return (yield) of 7.387%

That's your return if you buy one of those bonds and the bond is paid on schedule. Presumably the market consensus is there's some risk that payment may arrive late or not at all since the yield to maturity has increased since issuance and not as a result of underlying interest rate changes.

[el_nahual]

I mean, that's what the yield is. The spread between what the bond pays and the Risk-Free Rate (Treasury) tells you what the market thinks the risk of default is.

For a spread of 300 basis points that's still a very low probability, probably under 5%.

[toast0]

If they had said 'the yield is' or especially the 'yield to maturity' is... that's one thing, but they said "you will get a return of"

You'll probably get that, but you might not.

[koolba]

Even in the case of a default it’s not a zero payoff. Bond holders get first dibs of unsecured assets at liquidation.