High-yield bonds rated below investment grade (BB+ or lower), indicating higher risk of default but offering higher interest rates to compensate investors. Also known as high-yield or speculative-grade bonds.
Compound from 'junk' (originally meaning old rope, from Middle English jonk) and 'bond'. The term became popular in the 1980s during Michael Milken's era at Drexel Burnham Lambert, though 'junk' was initially a pejorative term that the industry tried to replace with 'high-yield'.
Despite the unflattering name, junk bonds have historically delivered higher total returns than investment-grade bonds over long periods - the extra yield often more than compensates for the additional defaults, making 'junk' quite valuable!
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