Junk Bond

Bonds that have little or no collateral or liquidation value and are typically very risky. For this risk, they offer a high rate of return. They are issued by corporations without sales and earnings track records, or by those with questionable credit. Moreover, in the 1980s, junk bonds were popular instruments for corporate mergers and acquisitions. The bonds usually have a credit rating of BB or lower. Because the term has an unfavorable connotation, issuers and holders prefer the bonds to be called “high yield bonds.”

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