Junk Bond: Junk bonds carry a higher-than-average risk of default, which means that the bond issuer may not be able to meet interest payments or repay the loan when it matures. Except for bonds that are already in default, junk bonds have the lowest ratings, usually Caa or CCC, assigned by rating services such as Moody's Investors Service and Standard & Poor's (S&P). Issuers offset the higher risk of default on junk bonds by offering substantially higher interest rates than are being paid on investment-grade bonds. That's why junk bonds are also known, more positively, as high-yield bonds.

 

Related Words

Junk Bond: Junk bonds carry a higher-than-average risk of default, which means that the bond issuer may not be able to meet interest payments or repay the loan when it matures. Except for bonds that ar . . . View Full Definition

High-Yield Bond: High-yield bonds are bonds whose ratings from independent rating services are below investment grade. As a result, to attract investors, issuers of high-yield bonds must pay a higher rate of . . . View Full Definition

Passive Bond: A bond without any interest yield.

Payment-In-Kind (PIK) Bond: A bond that gives the issuer an option (during an initial period) either to make coupon payments in cash or in the form of additional bonds.