General
junk bond
What does junk bond mean?
Bond rated below BBB- by S&P or Baa3 by Moody's. Issuer's credit is shaky, so the coupon is juicy to compensate for the real chance you don't get paid back. Polite industry term is 'high yield', but everyone calls them junk.
"Loaded up on junk at 11% yields, betting the Fed cuts before defaults spike."
Origin
Popularised in the 1980s by Michael Milken at Drexel Burnham Lambert, who turned junk into a financing tool for the LBO boom.
Frequently asked questions
What is a junk bond?
A junk bond is a sub-investment-grade bond that pays a fat yield to compensate for its fat risk.
How do you use junk bond in a sentence?
"He chased the high returns on junk bonds and got burned when one defaulted."
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