Glossary

A junk bond is a high-yield, high-risk bond that is issued by a corporation or government with a lower credit rating. 📉

These bonds are considered speculative because they have a higher chance of default compared to investment-grade bonds. Due to their higher risk, junk bonds offer higher interest rates to attract investors seeking higher returns.

For example, a company with a weak financial profile might issue junk bonds to finance new projects or acquisitions. Investors who buy these bonds are compensated for taking on more risk with higher yields.

Fun fact: The term "junk bond" became popular in the 1980s when Michael Milken, a former Wall Street financier, pioneered the use of high-yield bonds in leveraged buyouts and corporate takeovers. 💰 This led to a booming market for junk bonds, which played a significant role in the 1980s corporate raiding era.