Junk bonds

Junk bonds are also known as 'high yield', 'non-investment grade', or 'speculative' bonds.

Junk bonds are also known as 'high yield', 'non-investment grade', or 'speculative' bonds. They are usually issued by companies without well-established records of earnings, and so have to offer higher rates of interest to compensate for a greater probability of default on those interest payments.

The rating is determined by the main credit rating agencies: Moody's, Standard & Poor's, and Fitch. Junk bonds are also used by small firms to finance takeovers of larger companies, particularly in the US. Firms with investment grade (BBB- or better, according to S&P's system) bonds can be downgraded to junk status if they hit difficulties. These are called 'fallen angels'.

See Tim Bennett's video tutorial: Bond basics.

Most Popular

Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021
The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021