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A high-risk bond from a company with poor credit. High yield but might default.
Why It Matters
Junk bonds (politely called 'high-yield bonds') pay 6-10%+ yields because there's a real chance the company won't pay you back. They're rated BB or below by agencies like Moody's and S&P. In good times, they're great income generators. In recessions, defaults spike - 2020 saw some high-yield bonds lose 20%+ before recovering.
Key Points
- The term 'junk bond' came from the 1980s when Michael Milken pioneered trading these risky securities
- High-yield bond ETFs (HYG, JNK) diversify across hundreds of issuers to reduce individual default risk
- Junk bonds often move more like stocks than bonds - they drop during market panics when defaults rise
Related Terms
Common Questions
A high-risk bond from a company with poor credit. High yield but might default. Junk bonds (politely called 'high-yield bonds') pay 6-10%+ yields because there's a real chance the company won't pay you back. They're rated BB or below by agencies like Moody's and S&P.
Junk bonds (politely called 'high-yield bonds') pay 6-10%+ yields because there's a real chance the company won't pay you back. They're rated BB or below by agencies like Moody's and S&P. In good times, they're great income generators. In recessions, defaults spike - 2020 saw some high-yield bonds lose 20%+ before recovering.
The term 'junk bond' came from the 1980s when Michael Milken pioneered trading these risky securities
High-yield bond ETFs (HYG, JNK) diversify across hundreds of issuers to reduce individual default risk
Junk bonds often move more like stocks than bonds - they drop during market panics when defaults rise