junk bond

noun

Definition of junk bond

: a high-risk bond that offers a high yield

Examples of junk bond in a Sentence

Recent Examples on the Web

Fallout from the political crisis in Italy has now presented investors with more shorting opportunities as the country’s corporations make up one fifth of the European junk bond market. — Tom Beardsworth, Bloomberg.com, "Hedge-Fund Diners Said to Talk Short-Selling as Bonds Turn," 5 June 2018 The upshot: Longer-duration assets (say, a 10-year Treasury, as opposed to a two-year one) and lower-credit-quality assets (like junk bonds) start to look riskier and less attractive. — Matthew Heimer, Fortune, "Here’s What the World’s Biggest Investor Thinks the Markets Will Do Next," 9 July 2018 In early 2016 for instance, a single Goldman Sachs trader famously netted more than $100 million in profits by scooping up billions of dollars of junk bonds during a global market panic, and then unloading them once conditions settled. — Aaron Back, WSJ, "Volcker 2.0 Comes at a Good Time for Banks," 31 May 2018 The rating agencies watch deficits closely, and a downgrade to junk bond status would be catastrophic for Italy’s ability to raise finance by making its debt unacceptable to the European Central Bank. — James Mackintosh, WSJ, "Attention, Italy: Worry About Markets, Not Europe," 7 June 2018 Junk’s Milken analogue Robert Merkin (Steven Pasquale) is a financial shark in the vein of Gordon Gekko, trying to take over a struggling steel company with investments fueled by the titular junk bonds. — Constance Grady, Vox, "Your guide to the 17 most important nominees at this year’s Tonys," 7 June 2018 Investors withdrew money from European junk bond funds every week for six months, according to EPFR Global data to late April. — Tom Beardsworth, Bloomberg.com, "Hedge-Fund Diners Said to Talk Short-Selling as Bonds Turn," 5 June 2018 Bonfire of the Vanities may have been about junk bonds, though the book itself will probably never behave like one. — Fortune, "A Look Into the Dwindling World of Rare Books," 24 May 2018 That’s not much compensation, given that junk bonds tend to behave a lot like stock in bad markets. — Carla Fried, New York Times, "For Bond Investors, Low Expectations in a Low-Yield World," 12 Jan. 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'junk bond.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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27 Sep 2018

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The first known use of junk bond was in 1974

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More Definitions for junk bond

junk bond

noun

Financial Definition of junk bond

What It Is

A junk bond is a fixed-income security that is rated below investment grade by one or more of the major bond ratings agencies.

How It Works

A junk bond works the same as most other bonds -- an investor purchases a bond from a bond issuer with the assumption that the money will be paid back when the bond reaches its maturity date. The difference between an "investment grade" bond and a "junk" bond is that the junk bond issuer may not be able to repay the original principal.

Bonds often receive this type of low rating when the corporation, municipality or other entity that issued the bond is facing financial trouble. In these cases, the credit risk on the bonds is fairly high -- in other words, there is a relatively decent chance that the junk bond issuer will have trouble fulfilling its repayment obligations (including interest and principal). However, many junk bonds also pay higher yields than investment-grade bonds in order to attract investors.

Why It Matters

Junk bonds are usually purchased as speculative investments. Although investors rake in higher yields, they risk the chance that they never get their money back.

While junk bonds can actually be a savvy addition to a portfolio, they're not for everyone. The junk bond market is largely dominated by institutional investors, so an individual would need to be willing to spend time researching and analyzing. Investors wanting to diversify their portfolio with junk bonds might also want to consider investing in a junk bond fund.

Source: Investing Answers

junk bond

noun