Forex Glossary

Junk Bond

A junk bond is a fixed-income security that is rated below investment grade (BB or lower) by one or more of the major bond ratings agencies. Bonds often receive this type of low rating when the corporation, municipality or other entity that issued the bond has a high risk of default. When the credit risk on the bonds is high, there is a relatively decent chance that the junk bond issuer will have trouble fulfilling its repayment obligations (including interest and principal).

However, many junk bonds also pay higher yields than investment-grade bonds in order to attract investors. For this reason a junk bond is also referred to as a high yield bond.

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