Junk Bond

High-yield, high-risk bonds from companies with below-investment-grade ratings.

Junk bonds, formally high-yield bonds, are rated below BBB minus by major agencies. They offer higher yields to compensate investors for higher default risk. Companies that issue them are often heavily leveraged, early-stage, or in financial stress. Michael Milken popularized junk bonds in the 1980s LBO boom.

The struggling retailer issued junk bonds, tempting investors with a 12% yield to offset the default risk.