What is Junk Bonds?

Junk bond is the term for bonds of companies that are not rated (because they cannot get a decent rating) or for bonds that are rated below investment grade, which is BBB – in the case of Standard & Poor’s and BAA3 in the case of Moody’s.

Junk bonds are often purchased as speculative investments. Although traders rake in larger yields, they risk the opportunity that they never manage to get their money back. However, many junk provides also pay larger yields than investment-grade bonds so as to attract investors.