Monday, December 27, 2010

Junk Bond

A junk bond is a term for debt securities that have a lower credit quality, and thus trade at a higher relative yield.  Junk bonds generally have a low credit rating (below BBB from Standard & Poor's), which implies a higher risk of the issuer defaulting - thus the higher yield helps to compensate the investor for this credit risk.

Synonyms: High yield bond, Sub-investment grade bond, High yield debt

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