3.3.4.4. High-Yield or Junk Bonds
Non-investment grade bonds (BB+ credit rating or lower) are also known as junk bonds. Junk bonds are a type of unsecured or partially secured corporate bond that typically offers significantly higher yields as a risk premium to compensate for their lower credit rating. For this reason, junk bonds are also known as high-yield bonds. Non-investment grade ratings are usually given to companies that do not have a long track record or who have a questionable ability to meet their debt obligations.
For most of the twentieth century, all new publicly issued bonds were investment grade. The only junk bonds in the market were bonds that had once been investment grade but were downgraded by the issuing company’s financial deterioration. Companies