What Is a Junk Bond?

Junk bonds are those that have a higher chance of default than most corporate and government bonds. A bond is a debt or commitment to pay interest and return invested principal to investors in exchange for purchasing the bond. Junk bonds are bonds issued by firms that are experiencing financial difficulties and are at a high risk of defaulting or failing to pay their interest payments.
Junk bonds are sometimes known as high-yield bonds since they require a greater yield to help offset the risk of default.

Junk bonds are bonds that carry a higher risk of default than most bonds issued by corporations and governments.

Junk bonds are low-grade bonds may be issued by companies without long track records, or with questionable ability to meet their debt obligations. Because most brokers do not invest in these low-grade bonds.

However, because of the very high interest rates these bond issues typically offer, they are also referred to as high-yield bonds.