We derive a closed-form pricing formula for high yield notes that have been planned to be issued by Taiwanese local security firms in 2003. These financial derivatives are pure discount bonds with an embedded short position in equity put options. They are useful hedging instruments in financial markets with a legal restriction on issuing put options on equities or under bear market conditions. We show that high yield notes can be synthesized by buying pure discount bonds and selling exchange-linked put options, and investigate their specific properties and the corresponding hedging strategy for issuing high yield notes. Finally, we derive the closed-form pricing formula and hedging strategy for high yield notes under the Gaussian HJM framework of stochastic interest rates.