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'.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
