Junk Bond

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What is a 'Junk Bond'

A junk bond is 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.

BREAKING DOWN '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.

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RELATED FAQS
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    Learn how credit rating agencies rate bonds with junk bond status, and understand how downgrade risk can impact the price ... Read Answer >>
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  4. What bond indexes follow the supply and demand for junk bonds?

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  5. How are junk bonds regulated?

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