Junk Bond

AAA

DEFINITION of 'Junk Bond'

A colloquial term for a high-yield or non-investment grade bond. Junk bonds are fixed-income instruments that carry a rating of 'BB' or lower by Standard & Poor's, or 'Ba' or below by Moody's. Junk bonds are so called because of their higher default risk in relation to investment-grade bonds.

INVESTOPEDIA EXPLAINS 'Junk Bond'

Junk bonds are risky investments, but have speculative appeal because they offer much higher yields than safer bonds. Companies that issue junk bonds typically have less-than-stellar credit ratings, and investors demand these higher yields as compensation for the risk of investing in them. A junk bond issued from a company that manages to turn its performance around for the better and has its credit rating upgraded will generally have a substantial price appreciation.

RELATED TERMS
  1. Predators' Ball

    An annual convention held by Drexel Burnham Lambert for the purpose ...
  2. Toxic Debt

    Debt that has a lower chance of being repaid with interest. Toxic ...
  3. Internote

    Corporate debt securities that are designed to allow ease of ...
  4. Investment Grade

    A rating that indicates that a municipal or corporate bond has ...
  5. Default Risk

    The event in which companies or individuals will be unable to ...
  6. Bond Rating

    A grade given to bonds that indicates their credit quality. Private ...
Related Articles
  1. Bonds: They're Not Just For Seniors
    Bonds & Fixed Income

    Bonds: They're Not Just For Seniors

  2. Junk Bonds: Everything You Need To Know
    Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

  3. Top 4 Most Scandalous Insider Trading ...
    Investing Basics

    Top 4 Most Scandalous Insider Trading ...

  4. Carl Icahn's Investing Strategy
    Fundamental Analysis

    Carl Icahn's Investing Strategy

comments powered by Disqus
Hot Definitions
  1. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  2. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  6. Budget Deficit

    A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer ...
Trading Center