junk bond

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Wall Street term for bonds listed as below investment grade (rated BB or lower) by the bond rating agencies. Junk bonds are issued generally by smaller or relatively less well known firms to finance their operations, or by large and well known firms to fund leveraged buyouts. These bonds are frequently unsecured or partially secured, and (although they tend to have volatile market prices) they pay higher interest rates: 3 to 4 percentage points higher than the interest rate on blue chip corporate bonds of comparable maturity period. Due to the perceived greater risk of issuer's default, they are considered speculative investment and parties with fiduciary may not invest in them.
To counter the pejorative connotations of the term 'junk,' issuers and brokers prefer to call them high-yield bonds.

Use 'junk bond' in a Sentence

You may want to buy a junk bond if you think that it has been undervalued and may have a good chance of success.
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We did not want to invest any of our hard earned money into a junk bond because it would end up costing us.
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The junk bond had earned that rating over the previous years of high risk behavior by the bond so we did not buy.
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