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

Since its $225 million initial public offering in June 2010, Tesla has raised money by selling stock and convertible bonds, monetizing leases and floating junk bonds—the sort of thing almost any automaker might do. — Dana Hull, Bloomberg.com, "Tesla Doesn’t Burn Fuel, It Burns Cash," 30 Apr. 2018 Today, technology makes up just 5.6% of the junk bond market, from 4.4% a decade ago. — Christopher Whittall, WSJ, "Favorite Stock Market Crystal Ball May Have a Crack in It," 15 Nov. 2018 And according to Cohen & Steers, a $58.5 billion asset manager, investment-grade preferreds offer the highest pretax average yields (6.0%) of any income asset class, save for junk bonds (6.7%). — Eric Uhlfelder, WSJ, "Preferred Stocks Beckon If Interest Rates Behave," 9 Dec. 2018 The price on Tesla’s junk bonds also slid to about 85 cents on the dollar last week, according to MarketWatch. — Elizabeth Lopatto, The Verge, "A tale of two CEOs: Tim Cook demonstrates what some want from Elon Musk," 14 Sep. 2018 With the exception of last month, loans have been outperforming junk bonds this year. — Yakob Peterseil, Bloomberg.com, "At $1 Trillion, Leveraged Loans Are Closing In on Junk Bonds," 3 May 2018 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

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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18 Apr 2019

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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