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Finance
Junk Bond
A high-risk bond with a low credit rating that offers higher interest rates to attract investors.
Junk bonds are the same as high-yield bonds. They are rated BB or lower. While risky, diversified portfolios of junk bonds have historically delivered strong returns. They are sensitive to economic downturns.
It's the financial equivalent of buying a cheap used car — it might run great or it might break down tomorrow.
Real world: In the 1980s, Michael Milken popularised junk bonds to finance corporate takeovers. Some companies thrived; others defaulted. Today they are a major part of the corporate bond market.
💡 Junk bonds pay you to take risk — the question is whether the risk is worth the reward.